Boris Johnson’s election as Conservative Party leader and new prime minister means the UK is more likely to crash out of the EU without a deal resulting in “significant” damage to the country’s credit rating, according to research.
Any form of compromise on Brexit is less likely after Tory members voted for Mr Johnson as leader, credit ratings agency Moody’s said.
The man to be sworn in as prime minister on Tuesday has pledged to take the UK out of the EU on 31 October with or without an agreement despite the fact that a majority of MPs are against that option.
“With the election of Mr Johnson, the likelihood of a sustainable compromise appears lower than before,” said Colin Ellis, Moody's managing director. “Our view remains that a no-deal Brexit would have significantly negative credit effects for the UK.”
The ratings agency warned that Mr Johnson will have very little time to negotiate a deal and get it through parliament, which will be in recess from 25 July until 1 September.
That will give the new leader just two months before Britain is set to leave the EU on 31 October.
Moody’s said it could not fully assess the impact of Brexit on the UK’s creditworthiness until the final outcome is known.
If the UK’s credit rating were to be downgraded, government borrowing would likely become more expensive.
Moody’s downgraded the UK’s rating from Aa1 to Aa2 - the third highest rating in the agency’s scale - in September 2017, citing concerns about Brexit’s potential to damage the economy.
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.
It said this would hurt Britain’s credit rating compared with staying in the EU but would be significantly less damaging than a no-deal Brexit.
The EU shot down Mr Johnson‘s Brexit plan within moments of his appointment as Tory leader, in the latest sign that the bloc has no plans to make concessions.
Mr Johnson has said he would try to use the withholding of payments owed to the EU as leverage to force it back to the negotiating table.
In an intervention timed to coincide with Mr Johnson’s election announcement, Frans Timmermans, the European Commission’s first vice president, told reporters in Brussels that the EU would not renegotiate.
Another EU commissioner, Vytenis Andriukaitis, also warned that politicians like Mr Johnson were undermining democracy with “cheap promises, simplified visions, blatantly evident incorrect statements”.