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S&P cuts UK's credit rating by 2 levels

by Agencies
27 Jun 2016 at 21:50hrs | Views
S&P Global Ratings cut the UK's top credit grade by two levels after the country voted to leave the European Union last week.

S&P lowered the rating to AA from AAA, citing the risk of a less predictable, stable, and effective policy framework in the UK. The cut also "reflects the risks of a marked deterioration of external financing conditions" and constitutional issues arising from the majority of voters in Scotland and Northern Ireland having opted to remain in the EU.

The rating company left the UK on negative outlook, reflecting the risk to "economic prospects, fiscal and external performance, and the role of sterling as a reserve currency, as well as risks to the constitutional and economic integrity of the UK if there is another referendum on Scottish independence."

Moritz Kraemer, S&P's global sovereign chief ratings officer, said in an interview on Bloomberg Television on Friday that the company would be looking at the longer-term political fallout as well as the economic impact to the vote. Prime Minister David Cameron announced last week that he will step down, while the opposition Labour Party is in turmoil after the resignation of senior figures.

The downgrade may just be the first as the biggest rating companies reconsider the UK in the light of last week's referendum result and the resulting economic and political repercussions. Moody's Investors Service lowered its outlook on the country to negative from stable on Friday. It has the UK one step below its top grade at Aa1.

In the days since the vote, global markets have buckled, infecting every asset class, and sending the  pound plunging the most on record. UK government bonds surged, pushing the 10-year yield below 1% for the first time, amid speculation the Bank of England will maintain an easy monetary policy to ward off the risk of recession.

Source - Bloomberg