The probability of the United Kingdom (UK, Aa2 stable) leaving the European Union (EU) without any agreement on their future relationship has increased following the election of Boris Johnson as Conservative Party leader, Moody's Investors Service said in a report today.
Mr Johnson, who will replace Theresa May as prime minister this week, was a figurehead of the "Vote Leave" campaign in 2016 and has said that he wants the UK to leave the EU by the deadline of 31 October 2019, regardless of whether the EU agrees to a revised deal.
"With the election of Mr Johnson, the likelihood of a sustainable compromise appears lower than before," said Colin Ellis, Moody's Managing Director - Credit Strategy. "Our view remains that a no-deal Brexit would have significantly negative credit effects for the UK sovereign and related issuers."
Since the outcome of the Brexit referendum, Moody's central expectation has been that the UK and the EU would reach a withdrawal agreement that preserves many of the features of current trading arrangements, particularly for goods. Although this would be credit negative compared with staying in the EU, it would be significantly less damaging than a no-deal Brexit.