S&P downgrades UK after Brexit

Standard & Poor’s (S&P) has downgraded the UK credit rating from the enviable ‘AAA’ to ‘AA’, following the uncertain effects of Brexit on the country’s economy.

On Friday, Moody’s cut the country’s credit rating outlook to negative.

In March, Standard & Poor’s (S&P) revised Nigeria’s sovereign credit outlook to negative, from the stable outlook it initially had, pulling the country’s rating to B+, following the economic crisis rocking the nation.

In a statement on Monday, S&P said the outcome of the EU referendum is a seminal event, which will lead to “a less predictable, stable, and effective policy framework in the UK”.

The rating agency said it had “reassessed our view of the UK’s institutional assessment and now no longer consider it a strength in our assessment of the rating”.

“The vote for ‘remain’ in Scotland and Northern Ireland also creates wider constitutional issues for the country as a whole,” S&P said.

“Consequently, we are lowering our long-term sovereign credit ratings on the U.K. by two notches to ‘AA’ from ‘AAA’.

“The negative outlook reflects 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.”

S&P cut UK GDP forecast by one percent, keeping it lower than Nigeria’s 1.5 percent, according to Fitch, and 2.3 percent, according to the International Monetary Fund (IMF).

“Given the uncertainty and fall in investment tied to the ‘leave’ vote, we are forecasting a significant slowdown in 2016-2019, with GDP growth averaging 1.1% per year (compared to our April forecast of 2.1% per year).

“A fall in investment will affect growth, job creation, private sector wage growth, and consumer spending.

“At 84% of GDP (2016 estimate), the U.K.’s net general government debt ratio remains high. Since the 2008 financial shock, fiscal consolidation has been substantial–primarily in the form of cuts to general government expenditure.”