S&P Global Ratings on Monday said it downgraded the U.K.'s credit rating as a lack of clarity over a number of key issues resulting from the country's decision to leave the European Union will hurt confidence, investment, GDP growth and public finances.
On a long-term foreign and local currency sovereign credit ratings basis, S&P dropped the U.K. to AA from AAA, determining the long-term rating outlook as negative.
The agency also lowered its long-term issuer credit rating on the Bank of England, and the ratings on the debt programs of Network Rail Infrastructure Finance, to AA from AAA. The Bank of England's long-term rating outlook is also negative.
S&P said in a notice on its website that the downgrade reflects the agency's view that the result to leave the EU “will weaken the predictability, stability and effectiveness of policymaking in the U.K., and affect its economy, GDP growth, and fiscal and external balances.”
The downgrade also reflects what S&P considers “enhanced risks of a marked deterioration of external financing conditions in light of the U.K.'s extremely elevated level of gross external financing requirements (as a share of current account receipts and usable reserves),” said the notice. Given the Brexit result, the U.K.'s overall economic performance could deteriorate, including its financial services sector, which S&P noted was a “major contributor to employment and public receipts.”
Brexit also could “trigger a constitutional crisis” should Scotland launch a second referendum to become independent from the U.K., S&P added.
The U.K. also faces risks over the uncertainty surrounding the potentially long-lasting exit negotiations and future relationship with the EU, with the possibility of delays on capital expenditure in an economy “that already stands out for its low investment/GDP ratio,” the notice said.
