Ratings agency Moody's has lowered its outlook on Britain's credit rating from stable to negative as it said its creditworthiness was now at greater risk following the Brexit vote.
In assigning a negative outlook to its 'Aa1' rating, the agency says that both economic growth and public finances will be weaker than forecast and it would be harder to cut the deficit.
"During the several years in which the UK will have to renegotiate its trade relations with the EU, Moody's expects heightened uncertainty, diminished confidence and lower spending and investment to result in weaker growth," it said in a statement according to Reuters.
Moody's is the first credit ratings agency to make a decision on the UK economy following warnings by rivals Standard & Poor's and Fitch Ratings that the vote to leave would be negative.
Back in 2013, Moody's was the first to strip Britain of its AAA credit rating due to slow growth and rising public debt. It said Thursday's vote put in doubt Britain's economic policy making.
"Policy predictability and effectiveness of economic policymaking ... might be somewhat diminished," Moody's said. "The challenges for policymakers and officials will be substantial," it said.
The FTSE fell 7% in early trading and ended the day 3.15% lower at 6,138. Dow Jones posted its biggest one-day slide in almost five years. Sterling also plunged, falling more than 8% against the dollar and 6% against the euro. The S&P 500 suffered its biggest daily slide in 10 months when it fell 3.6% while the Nasdaq went down 4.1% on its worst day since 2011.
Jack Ablin, chief investment officer of BMO Private Bank, told the BBC: "This was really an event that caught most global investors flat-footed. We're going to see more days like today as the collective wisdom may prove wrong in others cases, too."
Meanwhile, Jason Schenker, president of Prestige Economics, told IBTimes UK that the impact on the UK economy would be significant with a domino effect on eurozone and global economies as well.