Moody's warns UK credit rating could be hit if country leaves the EU

Moody's has warned the UK's credit rating could be downgraded if the country leaves the European Union. The ratings agency currently has Britain on a AA1 rating with a stable outlook.

Kathrin Muehlbronner of Moody's said: "If Conservative plans to hold a referendum on European Union membership result in the UK's withdrawal, this could have further consequences for the whole economy. The sovereign rating could potentially be affected if the UK is not able to broadly replicate the benefits of membership."

Moody's issued its warning in a report published after David Cameron's Conservative party secured a majority in the general election. The prime minister has long promised an in/out referendum by 2017.

The group believes a so-called "Brexit" would have an adverse impact on investment and growth. It is also feared senior Tories could openly campaign for an EU exit.

Muehlbronner added: "Pressure to call the referendum earlier than end-2017, as currently promised, could also increase, which would impair still further the government's ability to achieve a demonstrable repatriation of powers."

Britain's business community, Labour, the Liberal Democrats and the majority of the Conservative party are all expected to campaign to remain within the EU.