S&P Slashes UK Rating to AA after Brexit

S&P Global Ratings cut the U.K.’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 U.K. 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 U.K. 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 U.K. 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 U.K. 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 U.K. one step below its top grade at Aa1.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza