A major credit rating agency says that a possible Brexit extension, which the British Parliament is considering, could be a plus for the UK.
There’s a lot of uncertainty as to whether the nation’s divorce from the European Union, slated for March 29, will be amicable or acrimonious. Moody’s Investors Service has dubbed the possibility of pushing the date back “credit positive” for the UK’s rating.
The firm said this reduces the “no-deal” possibility, which would create calamity for trading between Continental Europe and Britain. Moody’s said it thinks the UK and the EU will “eventually agree on a negotiated withdrawal.”
Certainly, Moody’s is not indicating a rating upgrade now. Following Britain’s June 2016 referendum vote to secede from the EU, all three major ratings agencies lowered the UK government’s bonds to the third notch down on the credit spectrum. In all three cases, the rating still is labeled high grade.
The one difference among the trio of ratings providers is that Moody’s rates Britain “stable,” while Standard & Poor’s and Fitch have the nation on “negative watch.” This means that they could lower their ratings further and they have doubts about the sustainability of their current assessment.
At this stage, Prime Minister Theresa May faces a series of parliamentary votes on the Brexit question. The first will be on a UK withdrawal revision, where, if May’s proposal is declined, a “no-deal” vote will occur the next day. If that doesn’t work out, the legislature will vote on a “short limited extension” to Article 50 from the EU, which enables the withdrawal. This would again stall Brexit. May has said she’d push it to June, adding that it would be “extremely difficult” to have it go further.
Parliament passed a rule that binds May to the schedule, as she’s changed voting dates at the last minute before.
Other leaders, such as Junior Justice Minister Rory Stewart and Irish Prime Minister Leo Varadkar, have said that delay is more likely.
“I think we would have to be forced into an extension of Article 50,” Stewart said in an interview with Sky News on Sunday. “There doesn’t seem to be parliamentary majority for ‘no deal.'”
Varadkar has told Cabinet colleagues he is expecting the terms to stall until June, according to Ireland’s Sunday Independent.
“At the moment, we do not think that the potential delay of the exit date provides any clear indication of what the final outcome of the Brexit process will be,” said Moody’s. “Such a delay also prolongs the state of elevated uncertainty for affected UK issuers, which weighs on their immediate business and credit prospects.”
If the extension option flies, the credit organization is concerned about how the EU will respond.
Like Stewart and Varadkar, Moody’s also sees this as a problem, but said it’s possible that there could be “unclear” conditions attached to the halt. If the European Council wants to extend a decision point to a date other than what Britain has proposed, that could end up making an agreement even tougher, the agency said.