There could be 'significant macroeconomic disruption' that would weigh on the credit quality of UK issuers if the UK and EU fail to reach a Brexit deal, according to a new report from Moody's Investors Service.
"We still think that the EU and the UK will eventually come to an agreement that captures many, but not all, of their current trade arrangements," said Colin Ellis, Moody's managing director of credit strategy, who co-authored the report.
"But the probability that negotiations will fail and no agreement will be reached is substantial."
Potential Impact
The report notes that if parties are unable to reach an agreement on the terms of the UK's withdrawal from the EU, the UK would likely see slower growth or recession, higher unemployment and higher inflation.
It adds that a weaker economy would weigh on UK corporate credit metrics, with reduced demand weakening revenues and profitability. This would impact many sectors, particularly 'just-in-time' supply chains affected by increased border inspections.
Global consumer goods companies may be 'relatively immune' from Brexit, given their earnings diversification outside the UK, however, UK food imports from the EU are more substantial, meaning that trade disruptions could be more significant for food retailers.
© 2017 European Supermarket Magazine – your source for the latest retail news. Article by Sarah Harford. Click subscribe to sign up to ESM: The European Supermarket Magazine.
