Brexit: How It Could Harm the UK, According to S&P

The debate over the U.K.’s future in the European Union has entered a new phase, with both sides in the so-called Brexit vote becoming ever more entrenched.

Arguments over the potential economic consequences of the U.K. voting to quit the 28-country European Union and go it alone took another twist late last week after ratings agency Standard & Poor’s downgraded the country’s prospects.

So why did the ratings agency make this call?

Rising risk

“What we believe we are observing in the U.K. is similar to what we saw in the U.S. in 2011 when we downgraded its outlook. Policymaking may be at risk at being subordinated to party politics – being driven not by what is best for the country, but for a particular constituency,” Moritz Kraemer, chief sovereign ratings officer at S&P, told CNBC.

The ruling Conservative Party has long had a euroskeptic faction, but as the referendum approaches – it could be any time in the next two years – each side is becoming increasingly strident , threatening the smooth running of a new government.

“The very strong cohesion and predictability of policymaking which has been a hallmark for U.K. politics for decades is, for the first time, at the risk of being weakened.”

The U.K. is at around a third risk of downgrade within the next two years, according to S&P. When the ratings agency restored the U.K.’s credit rating to AAA: Stable in 2014, it was seen as a vote of confidence in the country’s economic recovery.

Rumblings from the Scottish National Party (SNP) over the weekend about a new referendum on Scottish independence are a reminder of another risk on the horizon.


Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.