UK economy will slow significantly in near term: Moody’s

Moody's Investors Service said on Tuesday that UK's creditworthiness is under downward pressure following its decision to leave the European Union. Moody's said, uncertainty surrounding the Brexit vote will likely affect economic growth and weaken government finances. However, it added the UK also retains important strengths, including its large economy and solid institutional strength.

Moody's expects UK's public debt ratio to stagnate close to current levels of around 90 percent of GDP at best. The agency warned that UK's medium-term growth prospects could be weaker if it failed to reach new trade deal with EU that allows good access to European single market. It said that UK's economy will slow significantly in near term.

Moody's forecasts real GDP growth of 1.5 per cent and close to one per cent for 2016 and 2017, respectively. The risks to these forecasts are squarely to the downside, with a much lower growth rate for 2017 a distinct possibility. The UK budget deficit is expected to remain higher than expected before the EU vote, at 3.6 per cent of GDP in 2016 and 3.5 per cent of GDP in 2017.

However, Moody's said the UK does have a large, diversified and competitive economy, with high levels of wealth plus flexible labour and product markets. It added the Bank of England should ensure financial stability, while exchange rate flexibility will provide some support to UK exports.