Moody’s: Ireland Most Exposed to No Deal Brexit

Ireland along with three other EU countries are the most exposed to the UK crashing out of the EU without any deal, Moody’s Investors Service reiterated in a report, as the UK government published a final huge batch of advice to businesses to plan for that worst outcome.

EU countries including Ireland, the Netherlands, Cyprus, and Malta “could experience negative consequences” because of the strong links with the UK, the ratings firm said, RTTnews reported.

 “The trio of Ireland, Cyprus and Malta share the strongest links with the UK through supply chains,” Moody’s said. “In particular, Ireland sources nearly half of all imported intermediate goods for production processes from Britain.

“Following Luxembourg, Ireland and the Netherlands have the most substantial flows of funds. Portfolio investments are most pronounced in relation to Ireland, while foreign direct investment positions vis-a-vis the Netherlands are a primary driver of those financial linkages with the UK,” its report said.

On the UK exiting without a deal, Moody’s said: “The UK’s withdrawal from the EU without an agreement to replace existing arrangements—a risk that has risen materially in recent months—would damage the UK economy and be credit negative for a range sectors and debt issuers in the UK and Europe.”

“We still think the UK and the EU will eventually reach an agreement to preserve many, but not all, of their current trading arrangements, particularly around trade in goods,” said Colin Ellis at Moody’s. “However, we believe the prospect of the UK leaving the EU without any agreement has risen materially,” he said.

Meanwhile, Mark Carney gave a stark warning of the dangers of a no-deal Brexit that could see mortgage rates raised even as economic output and house prices tumble.

The Bank of England governor joined the British cabinet, chaired by Prime Minister Theresa May, to share worst-case economic scenarios used by the central bank, people familiar with the matter said. He told those present that crashing out without an agreement would lead to a fall in the pound and higher tariffs, pushing inflation higher.

That would make it harder to cut borrowing costs to support the economy as the BOE did in the aftermath of the Brexit vote in 2016, said the people, who asked not to be named because the discussions were private.

Carney outlined an extreme scenario in which house prices fall by 35%.