Fitch says no-deal Brexit a 'material possibility'
Warns of downgrade on any outcome that harms growth, govt finances
An "acrimonious and disruptive" no deal Brexit had become "a material and growing possibility", ratings agency Fitch said on Thursday.
The agency said that the widening of political divisions in the UK and slow progress in negotiations with the EU "means there is such a wide range of potential Brexit outcomes that no individual scenario has a high probability".
Fitch's earlier assumption after the March 19 draft withdrawal agreement of an exit in March 2019 with a transition period until around December 2020 and a framework for a future Free-Trade Agreement - "looks more uncertain".
It also warned that that worsening public finances leading to a rising government debt ratio and lower growth could also lead to a downgrade of the UK's sovereign rating - currently AA with a negative outlook.
Fitch said the government's Chequers plan faced opposition from remainers and brexiteers and had underlined the "depth of division within the ruling Conservative Party and parliament on the future relationship with the EU".
"Any deal is likely to provoke brinkmanship and may not gain parliamentary approval. This could trigger a general election and greater talk of a second referendum. The time available to finalise a withdrawal agreement is getting shorter, while the UK and EU remain wide apart," the agency said.
"No deal is also a material possibility. This would substantially disrupt customs, trade and economic activity, with the depth of disruption depending on how quickly a 'bare bones' deal could be reached."
Fitch said its latest macroeconomic forecasts pointed to GDP growth slowing to 1.3% this year moving to 1.7% in 2019 and 2020, but only on the basis of a smooth Brexit.
"In a more disruptive Brexit we could substantially reduce our growth forecasts and change our unemployment and inflation assumptions," it added.
"Our current forecasts are consistent with the general government deficit falling moderately to 1.4% of GDP in 2020 from 1.9% in 2017, allowing government debt-to-GDP to decline to 83.5% from 87.7%."
"An adverse Brexit scenario involving a sharp growth slowdown in 2019 and anaemic recovery in 2020 could see the deficit rise towards 2.5% of GDP in the near term, other things equal. In this scenario, debt-to-GDP would decline more gradually over 2019 and 2020. A severe enough shock could reverse the downward trajectory in the ratio since 2015."