The UK could risk its strong sovereign credit rating if it failed to foot the Brexit bill in a no deal scenario, Moody’s ratings agency has warned.

The Brexit Secretary Dominic Raab's remarks about the so-called EU divorce bill had also been highly “damaging” for both free trade and investment prospects, according to senior sources.

Colin Ellis of major credit ratings agency Moody’s told The Daily Telegraph that any failure by a country to pay what it had promised “with 100pc clarity” could be considered a default. A failure to pay a legally binding debt can result in a country’s credit score being slashed to sub-investment level, sending markets a highly negative message.

Mr Ellis also cited the example of Cyprus, which defaulted in 2013, and is yet to reclaim investment grade status.

A senior British government source admitted that the threat by Mr Raab to withhold the bill was not all it seemed. “Not paying a penny is not realistic,” the source said.