UK Credit Ratings Cut by S&P and Moodys
- Posted by Shyam Gokani in Bank of England, Bremain, Brexit, Currency, David Cameron, Dollar, Economy, EUR, GBP, Mark Carney, Referendum, Sterling, UK
- June 28, 2016
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Higher-yielding, riskier currencies such as the Australian dollar rose along with sterling on Tuesday on hopes of a more coordinated central bank response to stem steep losses in markets after Britain’s vote to leave the European Union.
Safe-haven currencies such as the yen and the Swiss franc, which had gained sharply since last Thursday’s vote, were weaker, although risk sentiment was fragile.
The first EU summit since the vote is being held right now.
Central bank policy makers have an opportunity to soothe markets at a European Central Bank Forum in Portugal. Although ECB President Mario Draghi has cut short his appearance there to head to the EU Summit, he is due to speak on “The future of the international monetary and financial architecture”.
Osbourne says that we will have to raise taxes and cut spending in the UK to deal with the fallout of the Brexit.
Britain suffered further blows to its economic standing on Monday as two top ratings agencies downgraded its sovereign credit score, judging last week’s vote to leave the European Union would hurt its economy.
Standard & Poor’s stripped Britain of its last remaining top-notch credit rating, dropping it by two grades from “AAA” to “AA” and warning more downgrades could follow.
Fitch Ratings also downgraded its ranking for Britain’s creditworthiness by one notch, and similarly said more cuts could follow.
The ratings agencies effectively added a rubber stamp to the market’s view of the Brexit vote, as sterling tanked to a 31-year low against the U.S. dollar on Monday and stock markets fell for a second trading day since the referendum last Thursday.
It was the first time S&P had chopped an AAA-rated sovereign credit rating by two notches in one move.
Chancellor George Osborne said on Monday the British economy was strong enough to cope with the volatility caused by Thursday’s referendum.
But the vote has plunged the country into a political crisis, with the ruling Conservative Party looking for a new leader after Prime Minister David Cameron said he would stay on until October, delaying the launch of negotiations with the EU and leaving the country’s economic prospects under a cloud of uncertainty.
The added prospect of a new independence referendum in Scotland, which voted strongly to stay in the EU, threatens the constitutional and economic integrity of the United Kingdom, S&P warned.
Fitch more than halved its growth forecast for Britain’s economy in 2017 and 2018 to just 0.9 percent for both years, from 2.0 percent previously.
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