The Daily Update - S&P UK Sovereign debt warning

The rating agency Standard and Poor's (S&P) has warned that a disorderly exit from the EU might lead to further downgrades on the United Kingdom's long-term sovereign debt. The agency warned that the UK should not underestimate the ‘self-preservation’ instincts of the European Union, believing the EU will be keen to avoid a domino effect of other countries looking to leave the bloc if they perceived Britain received a ‘lenient’ post-Brexit trade deal. S&P had previously cut the UK’s AAA rating by two notches to AA with a negative outlook after the results of the mid-2016 vote.

After reaffirming Britain’s AA rating and keeping the outlook negative, the same as before, there was a stark warning. ‘The U.K. government at the time misread the electorate's mood when it invited it to vote on EU membership. It is hopefully not also misjudging central convictions held across the Channel’ global chief rating officer at S&P, Moritz Kraemer wrote, adding ‘Otherwise, a disorderly Brexit could become increasingly likely. Such a turn of events would bring renewed downward pressure to Britain's sovereign rating’.

S&P also warned that there was only limited time left to agree a framework for any future relations and that greater internal divisions in the government was making the discussions more difficult. Its belief is that the UK economy is already showing signs of stress, and that a ‘no-deal’ scenario, or ‘hard Brexit’ would increase those stresses. ‘Even if a transitional agreement is reached, we think under most realistic scenarios the UK economy would experience an extended period of slower trend growth, and that key services sectors would suffer’ the report warned.

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