The UK’s hung parliament is likely to delay the Brexit negotiations and is “credit negative” for the country, ratings agency Moody's has warned.
The inconclusive election result could also slow efforts to shrink the budget deficit as it will now be a lower priority for the Government. This is also bad for the country’s credit rating, Moody’s said in a report published on Monday.
“In our view, the budget deficit will increase this year and next as the Government reacts to the economic slowdown under way,” said Kathrin Muehlbronner, Moody's senior vice president.
“The election outcome, with significant gains for the Labour Party which had campaigned for increased public spending, will likely be seen as a 'vote against austerity'. The public debt ratio will rise further and for longer than we had expected.”
On the positive side, the ratings agency said the result made a hard Brexit less likely. Prime Minister Theresa May repeatedly said in the run-up to last week's election that she was willing to walk away from talks with the EU if necessary, because “no deal is better than a bad deal”.
Following the disastrous result for Ms May’s Party, which was interpreted partly as a rejection of hard Brexit, the Government will likely have to soften that stance.
The Conservatives announced on Monday that they might delay the Queen’s Speech, which sets out the Government's legislative agenda.
It had been due to take place on Monday 19 June but the Conservatives now need more time to hammer out the details of a deal with Northern Ireland’s Democratic Unionist Party, which the Prime Minister has called upon to support her minority government. Brexit secretary David Davis said the manifesto would probably be "pruned".
Jeremy Corbyn has maintained that his Labour Party is “ready to serve” the country should the opportunity arise.
Mr Corbyn has advocated a much softer Brexit than Ms May, with continued access to the single market and customs union being the priorities.
“While it is unclear at this stage which changes to its strategy the Government will contemplate, it may be that 'softer' versions of Brexit will now be considered. This could potentially include a request to remain inside the EU single market or the customs union,” Moody's said.Reuse content