British economy may flourish after ‘Brexit’ – Moody’s bullish about credit rating

“You turn if you want to, the lady’s not for turning” The famous phrase, coined in 1980 by Margaret Thatcher during a speech in which she referred to her refusal to perform a “U-turn” in response to opposition to her liberalisation of the economy, has lived on in the minds of a great many for […]

“You turn if you want to, the lady’s not for turning”

The famous phrase, coined in 1980 by Margaret Thatcher during a speech in which she referred to her refusal to perform a “U-turn” in response to opposition to her liberalisation of the economy, has lived on in the minds of a great many for 35 years.

U-turns these days are more common than ever, and the current potentially market-affecting potential U-turn is the deliberation over a potential exit from the European Union by Britain.

In contrast to Mrs. Thatcher’s decisive accuracy, today’s senior government officials are ponderous; their will dwarfed by the giant shadow of dictatorial EU policy.

Whilst no government U-turn has materialized because despite popualar opinion in the United Kingdom being in favor of curtailing the throwing of millions down the black hole which is Europe’s failing economy which overarches a number of low-producing nations which fail to modernize, a U-turn by credit agency Moody’s has begun to emerge.

In June this year, in the advent of an intentional default by Greece on its unsustainable and gargantuan debt Moody’s warned that despite the woes and financial ruin of mainland Europe, and the talks of Greece exiting the EU and leaving its debt unpaid, it would be in Britain’s best interests to remain in the European Union, stating that a downgrade in its national credit rating could arise as a result of a ‘Brexit’.

Brexit – the acronym for British Exit from the European Union, has not struck anything like the fear into the hearts of British businesses as it has into those of public sector officials who are riding the blank-check gravy train of Brussels.

At that time, it would have appeared to many an economist that contrary to being the subject of a downgrade, Britain would preserve its high credit rating by leaving the European Union.

Moody’s has now reported that Britain would indeed likely retain its AA1 credit rating should the Brexit become a reality.

Quite right too.

Kathrin Muehlbronner, Senior Vice President at Moody’s and the agency’s lead UK analyst, stated that Britain’s “diversified and rich economy” meant it would flourish outside the bloc.

Nowhere in mainland Europe has the highly advanced financial services, banking and fintech industry, along with all of the top quality infrastructure, that London has. The vast national debts in Europe, lack of modernity, non-participation in global financial markets, and lack of position on the world stage even in previously industrialized nations such as Germany stands Britain out as the powerhouse for all of Europe.

The British business ethos is much better aligned with the major centers of the world such as Hong Kong, Singapore and all of North America, and connectivity via Equinix LD4 with close proximity to the City ensures that the commercial financial world is a small place.

Moody’s stated that the current uncertainty over staying in the EU or leaving within Britain could be negative for growth, although the firm also stated that this would be very short lived if Britain was able to negotiate new deals with major partners quickly.

That will be very easy, especially for the major financial giants in London. HSBC and Standard Chartered, among others, have been focusing on Asia for quite some time, and unshackled by often business unfriendly European directives and sensible British conservative initiatives, this could be a great corporate bridge between Britain and Asia’s institutional financial industry.

Ms. Muehlbronner continued.

“Uncertainty alone may not change the rating. What we care about is economic strength, and it is our view that the economic impact of a Brexit would be negative.

“The question is: how big would the damage be? Would we just be looking at a short-term moderation of growth where the UK puts in place other policies that mitigate the other downsides?

“In that case, it might well be that there is no impact on the rating. For example, in a scenario where growth falls that doesn’t change some of the fundamentals of the UK – we see it as a very strong, large, diversified and rich economy, with strong institutions.”

Moody’s was one of the first rating agencies to remove Britain’s gold plated credit rating in 2013 and downgrade it, during a time when the government’s debt reduction program was subject to significant challenges, however two years on, its current outlook is that the UK rating is stable.

Moody’s has decided to maintain the current AA1 rating, an will potentially upgrade the UK to its top rating if the country is successful in getting its debt share down.

Ms. Muehlbronner said

It’s not as mechanical as: get debt down by 10 percentage points and get an upgrade, but clearly in order to get back to a higher rating, the UK would need to improve on 

As Britain flourishes, the pound stays high in value, the financial sector booms and mainland Europe lags behind and is engulfed in political, demographic and economic quagmires, it could be a time where the GBPUSD pair becomes favorable over the EURUSD among traders who consider only one direction in future for the single European currency.

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