Moody's Investors Service has today changed the outlook on the UK's long term issuer and debt ratings to negative from stable. Both ratings are affirmed at Aa1.
Today's rating action reflects the following key drivers:
1. The majority vote in favour of leaving the European Union (EU) (Aaa, Stable) in the referendum held on 23 June will herald a prolonged period of uncertainty for the UK, with negative implications for the country's medium-term growth outlook.
2. While the UK's institutional framework will not change, Moody's considers that policy predictability and effectiveness of economic policy-making -- an important aspect of institutional strength - might be somewhat diminished as a consequence of the vote. The UK government will not only need to negotiate the UK's departure from the EU but will likely also aim to embark on significant changes to the UK's immigration policy, broader trade policies and regulatory policies.
3. As a consequence of the weaker GDP growth outlook and institutional strength, the UK's public finances will also likely be weaker than Moody's has assumed so far. In Moody's view, the negative effect from lower economic growth will outweigh the fiscal savings from the UK no longer having to contribute to the EU budget.
Goldman Sachs forecasts UK recession in 2017, downgrades global growth forecasts
The U.K. is likely to enter a "mild recession" by early 2017, following its vote leave the European Union (EU), Goldman Sachs economists wrote in a report released Sunday.
The bank's economists also downgraded its global growth forecast by 0.1 percentage point to 3.1 percent in 2016.
U.K. gross domestic product (GDP) would take a 2.75 percentage-point hit in the next 18 months from the cumulative effects of "increased uncertainty and deteriorating terms of trade," Goldman Sachs' Jan Hatzius, Jari Stehn and Karen Reichgott wrote.
Goldman's forecast for GDP growth in the U.K. this year was 1.5 percent, a 0.5 percentage-point drop from its previous forecast, while the bank's prediction for U.K. growth next year is 0.2 percent, a 1.8 percent decline from its previous forecast.
"First, the UK terms of trade are likely to deteriorate, especially if it becomes harder to export high-value added services (including financial services) to the European Union," the note said.
"Second, the uncertainty about the long term is likely to weigh on UK growth in the short term as firms hold off on investment...Third, outside the UK the main transmission channels are weaker UK demand for imports and—much more importantly—a tightening of financial conditions via a stronger exchange rate and lower risk asset prices."
Japan PM Abe says he has told FinMin Taro Aso to take steps to calm yen if needed
Japanese Prime Minister Shinzo Abesaid on Monday he has instructed Finance Minister Taro Aso to watch currency markets "ever more closely" and take steps if necessary, four days after Britain's historic vote to leave the European Union.
"Risks and uncertainty remain in financial markets," Abe said at an emergency meeting between the government and the Bank of Japan. "We need to continue to work toward market stability," he said.
China's Premier Li says Brexit has increased global economic uncertainty
China's Premier Li Keqiang on Monday said Brexit has increased uncertainties in the global economy and reiterated China's desire to see a united and stable European Union and a prosperous United Kingdom.
China May industrial profit growth eases to 3.7 percent year-on-year
Profits of Chinese industrial companies rose 3.7 percent in May from a year earlier, slowing from April's pace and adding to concerns that the world's second-largest economy may be losing some momentum.
A return to profit growth in the first quarter and a strong jump in March in particular had fueled hopes China's economy was perking up, but data since then has suggested it may be stabilizing at best.
Profits in May rose to 537.2 billion yuan ($81.21 billion), the statistics bureau said on Monday.
In the first five months of this year, profits rose 6.4 percent compared with the same period last year, the National Bureau of Statistics said on its website.
Oil prices stabilized on Monday as market participants better absorbed the shock of last week's vote in Great Britain to leave the European Union and recognized the referendum would have little effect on global fuel demand.
Brent crude futures were trading at $48.76 a barrel by 0650 GMT on Monday, up 35 cents from their last settlement.
U.S. crude was up 18 cents at $47.81 a barrel.
Both crude benchmarks had fallen around 5 percent on Friday amid plunging global financial markets as results from a referendum defied bookmakers' odds to show a 52 percent to 48 percent victory for the campaign to leave a bloc Britain joined more than 40 years ago.
But oil stabilized on Monday as analysts said that Britain's EU exit would have very little impact on physical oil trading.
Reference: Reuters,CNBC,Moody’s
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