LONDON — Moody’s is clearly not one for silver linings.
The ratings agency’s analytics department has projected harder times ahead for the U.K. and European Union economies following Britain’s vote to leave the EU, despite the FTSE 100 and other major markets returning to pre-referendum levels, and the pound recovering some lost ground against the dollar and the euro.
In a report issued this week — before the terrorist attack in Nice, France, on Thursday that killed at least 84 people — Moody’s Analytics said it expects U.K. economic growth to moderate to 1.5 percent this year, and to 0.5 percent next year, pointing to the uncertainty around the future trade deals that Britain will have to negotiate once it formally announces that it’s leaving the EU.
“The U.K. will face tough talks on its place in the single market. While the EU says British access to its market depends on labor movement freedom, the U.K. would aim for the country to stay in the single market while putting a stop to immigration.
“Amid the uncertainty, businesses and households are in an increasingly insecure situation, especially those most exposed to the turmoil. In the U.K., several companies have announced immediate hiring freezes and plans for relocating to the Continent,” the report said.
The euro zone economy is also headed for hardship due to Brexit and other factors, too. Moody’s said the economy will likely slow this and next year due the impact of the Brexit vote.
“Although we still expect the economy to expand, we have cut the growth estimates to 1.3 percent for this year, and to 1.1 percent for next year, from the 1.6 percent and 1.8 percent expected before the U.K. exit.
“Growth in the euro zone already cooled in the three months to June. The second quarter growth was the weakest since the end of 2014, signaling that the euro zone’s recovery had lost momentum even before the U.K. referendum on EU membership.”
Moody’s said the U.K. exit from the EU would weigh on the economy, which will likely push consumer prices lower.
“Inflation will remain subdued in coming quarters and falling producer prices are fueling worries that second-round effects of the oil price drop have passed through to the economy,” it said.
Moody’s applauded the Bank of England’s decision earlier this week to keep interest rates on ice and its asset-purchase program unchanged.
“The bank’s decision seems justified,” the company said. “An early rate cut could weigh further on the currency, adding to the volatility in financial markets and worsening the depreciation pass-through to domestic prices.”