The UK’s economy would suffer if it left the European Union, an international credit rating agency warned today as it spelt out the dangers of Brexit.
Moody’s – one of the Big Three credit rating agencies – this morning argued a vote to leave the EU in June’s referendum could lead to a fall in exports, a drop in international investment and a “negative” impact on the UK’s credit rating.
The intervention comes as London Mayor Boris Johnson handed the Leave side a boost by announcing he was backing Brexit.
But while Brexit campaigners were celebrating the coup of one of the UK's most recognisable politicians, the money markets reacted less favourably - with the pound slumping to a three-week low against the dollar.
Kathrin Muehlbronner, a senior vice president at Moody's, said: "We consider it positive that the referendum will take place as soon as June, as a lengthy period of uncertainty on the part of firms and investors would damage the UK's economic growth prospects.
“That said, the outcome of the referendum remains wide open. In our view, a decision to leave the EU would be credit negative for the UK economy.”
In a statement on Moody’s website, the agency elaborated on its concerns, and said: “The economic costs of a decision to leave the EU would outweigh the economic benefits.
“Unless the UK managed to negotiate a new trade arrangement with the EU that preserves at least some of the trade benefits of EU membership, the UK's exports would suffer.
“It would likely lead to a prolonged period of uncertainty, which would negatively affect investment, in Moody's view.
“It would also place a significant burden on policy-makers who would have to renegotiate the UK's trade relations with the EU and other countries and regions, as well as reconsider other areas such as regulatory and immigration policies.”
Mr Johnson's announcement he is backing Brexit has had a greater impact on the money markets than when it looked most likely that Scotland would vote for independence in 2014.
After a YouGov poll published ten days before the Scottish Referendum indicated the country would vote for independence, the pound fell 1.43 per cent against the dollar.
After Mr Johnson's reveal yesterday, the pound dropped 1.6 per cent against the dollar.
Alvin Tan, a strategist with French bank Societe Generale in London, told Reuters today: "The out camp were struggling to get a figurehead who was popular and Boris has given them that boost.
"I think there is genuine worry that Britain might vote to leave and the uncertainty is going to rise into the referendum. Apart from the fall in cable, the implied volatility in sterling has moved up sharply."
Vote Leave chief executive Matthew Elliot dismissed the concerns raised by Moody's, and said: “Warnings from the same institutions who failed to spot the financial crisis will sound hollow to voters who remember similar doom laden warnings about what would happen if we didn’t join the Euro.
"Our economy is a success despite the EU, not because it.
"In particular, if we Vote Leave we can build on the strength of our financial services, rather than handing more and more control of them to Brussels.”
Speaking on The Andrew Marr Show, he said: “If you remain in a reformed EU you know what you're going to get - you know how to do business, you know how to create jobs, you know how to continue with our economic recovery.
He added: “So it could cost jobs, it could mean overseas businesses not investing in Britain. It would be a step into the dark, a real risk of uncertainty and that's just the last thing we need in our country right now.”
Supporters of Brexit claim the UK's position as the fifth largest economy in the world would enable it to secure favourable trade deals with both the EU and other countries.