Monday, June 27, 2016 7.12 PM / By Maria Armental , WSJ
Standard & Poor’s Global Ratings stripped the U.K. of its pristine triple-A credit rating on Monday, warning the country’s vote to leave the European Union will lead to a less predictable, stable, and effective policy framework.
The firm, which cut the country’s ratings by two notches to double-A, also said the vote for “remain” in Scotland and Northern Ireland creates wider constitutional issues for the country as a whole. The ratings outlook is negative.
The credit rater said it believes the U.K. economy was able to attract higher inflows of low-cost capital and skilled labor than it would have without EU membership and said the U.K.’s EU membership, alongside London’s importance as a global financial center, bolstered sterling as a reserve currency.
S&P had warned Friday that it was reviewing the ratings and said it believed the vote to leave the EU would deter investment in the economy, decrease demand for sterling reserves and put the country’s financial services sector at a disadvantage with other financial centers.
The move comes after rival firm Moody’s Investors Service lowered its outlook on the U.K.’s credit rating to negative from stable on Friday. But Moody’s affirmed the U.K.’s rating at Aa1, the second highest available.
UPDATE: Guardian UK 17.50 PM
Here are the key reasons why S&P took this historic move:
1. In the nationwide referendum on the U.K.’s membership of the European Union (EU), the majority of the electorate voted to leave the EU. In our opinion, this outcome is a seminal event, and will lead to a less predictable, stable, and effective policy framework in the U.K. We have reassessed our view of the U.K.’s institutional assessment and now no longer consider it a strength in our assessment of the rating
2. The downgrade also reflects the risks of a marked deterioration of external financing conditions in light of the U.K.’s extremely elevated level of gross external financing requirements
3. The vote for “remain” in Scotland and Northern Ireland also creates wider constitutional issues for the country as a whole.
4. Consequently, we are lowering our long-term sovereign credit ratings on the U.K. by two notches to ‘AA’ from ‘AAA’.
5. 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.