Uncertainty around the future trade deals that the UK will have to negotiate once it formally decides to leave the European Union (EU) are likely to weigh on the country's medium-term growth prospects, new research suggests.

The annual Credit Analysis report from Moody's Investors Service says the UK's creditworthiness is under downward pressure following last month's Brexit vote, and its withdrawal from the EU will likely affect economic growth and weaken government finances.

However, the ratings agency also notes that UK also retains important strengths, including its large economy and solid institutional strength.

"The economy will slow significantly in the near term, and medium-term growth prospects could be materially weaker if the UK failed to reach a new trade arrangement with the EU that allows it reasonably good access to the European Single Market," says Kathrin Muehlbronner, a senior vice president at Moody's.

"Given the complexity and sheer amount of economic policy decisions in the coming years, the UK's institutions will be tested."

Moody's forecasts real GDP growth of 1.5% and close to 1% for 2016 and 2017, respectively, but says a much lower growth rate for 2017 is "a distinct possibility."

In line with recent announcements from the government, Moody's expects fiscal policy to be loosened this year and next, compared to earlier expectations of continuing fiscal restraint. The UK budget deficit is likely to remain higher than expected before the EU vote, at 3.6% of GDP in 2016 and 3.5% of GDP in 2017.

But the UK also retains important credit strengths that are unaffected by the exit-related uncertainties, including the fact it is a large, diversified and competitive economy, with high wealth levels and flexible labour and product markets.

Important aspects of institutional strength, such as a strong and long-established legal system, are also unaffected. The credibility of the Bank of England should ensure financial stability, while exchange rate flexibility provides some support for exports and the UK's external stability, the research concludes.