After the UK voted strongly in favor of leaving the European Union, rating agencies have moved to downgrade the country’s credit rating.
UK Credit Rating Downgraded Following Brexit Vote
According to S&P, the results of the referendum could be a watershed for the worsening of the UK’s economic performance, more so for its vibrant financial services industry.
Fitch, another credit rating agency, has also lowered the UK‘s ratings from AA+ down to AA. The agency further indicated that the country’s economy might be headed for an abrupt decline, at least in the short term.
Meanwhile, George Osborne, UK Chancellor, was adamant that the country would forge ahead bravely.
In an effort to calm the markets, the chancellor further asserted that the economy was strong enough though it would need to adjust to the referendum results.
Until recently, S&P was the only major credit rating agency to maintain an AAA rating for the UK but has now brought its ratings down to AA.
On the morning following the vote, Moody’s placed the UK’s credit rating at negative.
When a country’s rating is downgraded, it can have implication for the government in terms of the cost of borrowing money in the global financial markets. Theoretically, the higher the credit rating the lower interest rates on government’s external borrowing.
S&P added that the decision by the UK to leave the EU would have adverse effects on the “stability and predictability of UK’s policymaking.”
The rating agency further warned of the possibility of a constitutional crisis were Scotland to hold an independence referendum
In a statement, S&P said, “The deep divisions in society and in the ruling Conservative Party over the EU question may not go away quickly. This could hamper political stability and make policymaking a complex affair.”
Fitch has also warned that the leave vote may have implications not only for short-term economic growth but also for the medium term resulting from declines in immigration, exports to the EU and reduced investments from foreign companies.