Amid mounting concerns that the UK could leave the EU without agreeing a trade deal, influential credit ratings agency Moody’s has highlighted the impact of such a scenario on the retail sector and wider economy.

In a new report, Moody’s outlines that a no-deal Brexit would damage the UK economy and be credit negative for a range sectors and debt issuers in the UK and Europe.

It suggested that if the UK was forced to trade with the EU via higher World Trade Organisation tariffs, the retail sector would be hit hard by higher costs.

Moody’s added: “The immediate impact of a no-deal Brexit would likely be seen first in a sharp fall in the value of the British pound, as was also evident after the 2016 UK-wide referendum on whether to remain in or leave the EU.

“The fall in the exchange rate would lead to temporarily higher inflation and hence a further squeeze on real wages over the following two to three years, which in turn would weigh on consumer spending and depress growth.”

It added that these factors are likely to plunge the UK into “recession very quickly”.

Colin Ellis, Moody’s Chief Credit Officer EMEA and co-author of the report, commented: “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. However, we believe the prospect of the UK leaving the EU without any agreement has risen materially.

“The precise impact of a ‘no-deal’ outcome is impossible to define because both the UK and the EU would likely take swift steps to limit short-term disruption. But it would clearly pose more significant credit challenges than a negotiated exit.”

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