KUALA LUMPUR (June 24): The United Kingdom's (UK) decision to leave the European Union (EU) will lead to a prolonged period of uncertainty that will weigh on the country's economic and financial performance and will be credit negative for the UK sovereign and other rated entities, Moody's Investors Service said in a report published today.

The immediate financial market reaction has been pronounced, with sterling tumbling 10% in value to its weakest since 1985 and global equity markets falling.

"Heightened uncertainty during negotiations over new arrangements between the UK and the EU will likely dent investment inflows and consumer and business confidence in the UK, weighing on its growth prospects," said Moody's.

While the rating agency does not expect "Brexit" to have major credit implications for most EU-based issuers, it believes that the outcome of today's referendum could increase the risk of political fragmentation within the EU if popular support for the bloc fades among member states.

The UK voted in favour of leaving the EU by 52% to 48%. Under European law, the formal withdrawal process should take place over a two-year period, although this can be extended by mutual agreement.

Moody's said the broader process may take longer as both sides seek to mitigate the impact of Brexit.

In the report titled: UK Vote for EU Exit Signals a Prolonged Period of Uncertainty, a Credit Negative, Moody's said the lasting credit impact of the vote to leave will depend on the nature of the UK's new ties with the EU.

"Moody's central assumption is that the two sides will eventually come to an agreement that preserves most, but not all, of their current trading arrangements. However, the finer details in areas such as access to the single market, regulation and immigration, will have a significant bearing on the new operating conditions for debt issuers," it said.

It views the potential credit risks stemming from Brexit, to extend beyond the UK sovereign.

"In the non-financial corporate sector, car-makers, manufacturers and food producers could be affected by potentially higher trade barriers and reduced volumes. Telecommunication companies, airlines and the pharmaceutical sector are subject to regulatory risk," it said.