The persistent threat of a no-deal Brexit is a dark cloud hanging over U.K. corporates, and would likely lead to a spate of negative ratings actions, according to S&P Global Ratings.

In a Sept. 30 report, the rating agency warned that if the U.K. leaves the European Union without a deal — the risk of which S&P consider to be "limited" — the U.K. economy could be pushed into a recession, with GDP falling by 2.8% in 2020. The most exposed sectors would be automotive, leisure, retail, real estate, aerospace and defense, and transport infrastructure. S&P has taken 39 ratings actions since raising its risk assessment of a no-deal Brexit to "high" in October 2018.

"While some degree of short-term disruption would be unavoidable, an economic downturn would create credit pressures in more cyclical sectors, on individual rated U.K. companies, and other international companies with material business exposure to the U.K," wrote Paul Watters, regional credit conditions chair at S&P Global Ratings.

In a February report assessing the impact of a no-deal outcome, S&P Ratings said the initial impact would likely be limited to outlook changes, although certain nonfinancial corporates could be downgraded if the disruption "proves to be material enough to undermine competitiveness and operational performance."

Automotive players are among those expected to suffer the most in this regard, with important supply chains set to be disrupted by longer checks at customs while tariffs will erode profitability.

Jaguar Land Rover Ltd. has been put on negative watch by S&P, which cited "the impact on profitability of risks such as weaker-than-expected market volume growth, a potential no-deal Brexit, or new U.S. tariffs."

Financial institutions better prepared

Banks are among the best prepared for a no-deal Brexit, according to Bank of England Governor Mark Carney.

The potential for a no-deal Brexit to damage the broader economy would likely weigh on banks in the medium term, said S&P. A no-deal Brexit resulting in severe macroeconomic weakness would lead to rising personal and corporate U.K. insolvencies and weaker collateral values, which would eventually undermine earnings.

"Smaller lenders, more focused on U.K. retail banking or property-related lending, would be more vulnerable in this scenario," S&P's Watters wrote.

Pressure on the public sector

More than half of S&P's 45 public ratings on social housing, universities, and local governments have negative outlooks, with 18 of them downgraded or placed on negative watch in the last 12 months as a result of Brexit uncertainty.

Social housing providers are exposed to stagnating property prices across the U.K. while universities are expected to face weaker demand, potentially lower fees and higher pension contributions.