US ratings agency Moody’s has lowered growth forecasts for the UK and euro zone citing diminished confidence in the wake of the Brexit vote.
Moody’s reduced its growth expectation for the UK to 1.5 per cent in 2016 and 1.2 per cent in 2017, from 1.8 per cent and 2.1 per cent previously.
The agency also lowered its euro area growth expectations to 1.5 per cent for 2016 and 1.3 per cent for 2017, from 1.7 per cent and 1.6 per cent previously.
The agency said the British electorate’s vote to leave the European Union will likely result in a shock to confidence that will curb UK economic growth.
It said the uncertainty around the future of the UK outside of Europe’s common market will likely dampen business investment and consumer spending in the UK, as companies hold back on hiring and long-term investments and consumers postpone large spending decisions.
Moody’s said the direct impact on growth in the EU will be less significant, due to limited EU exposure to direct economic and trade linkages.
"The downside risks to global growth stem not from the possibility of a recession in the UK, but from the possibility that developments in the UK may give rise to increased political risk elsewhere in the EU," Moody's associate managing director Elena Duggar said.
