The Conservatives' surprise UK election victory will have no direct impact on the country's sovereign credit rating and the party is committed to further fiscal consolidation, Moody's Investors Service said in a report.
However, the credit impact on specific sectors will be more pronounced, the rating agency said, just as Prime Minister David Cameron consolidated his authority with the Cabinet reshuffle continuing on Monday.
"The election result has no impact on the UK's sovereign impact. The Conservatives have committed to pursuing further fiscal consolidation to stabilise and eventually reverse the rising public debt," said Kathrin Muehlbronner, co-author of the report. "However, the issue of Britain's continued membership of the European Union could have broader consequences."
If the Conservative Party's plan to hold a referendum on EU membership resulted in the UK's exit, this could have further consequences for the whole economy. There could be potential repercussions for the sovereign rating if the UK is unable to broadly replicate the benefits of EU membership. The outcome of a referendum remains highly uncertain, the rating agency said.
The election result's impact on specific sectors will be more marked.
"The election result reduces risks for energy retailers and bus and rail operators," said Graham Taylor, a Moody’s Senior Analyst and co-author of the report. "On the other hand, we see Conservative policies creating risks for renewable energy developers, banks, life insurers and housing associations. Many other industries are likely to see only minor direct effects from announced policies."
While the Conservative proposal to give housing association tenants the right to buy their homes at a discounted price has grabbed headlines, it is not clear how this would be put into force because housing associations are independent organisations.
On energy, Moody's regards Conservative policies as less favourable for renewable energy developers than those proposed by Labour and the Liberal Democrats. The Conservatives also propose that onshore wind farms should receive no subsidy.
On banking, the Conservatives will keep the bank levy in place but they will not impose the additional GBP 800 mln increase in the bank levy proposed by Labour. The Conservatives have pledged further reforms aimed at increasing competition in the UK banking sector.
