The United Kingdom continues to feel the economic backlash after citizens voted to leave the European Union. Rating agency Standard & Poor has slashed the UK’s formerly top AAA credit rating, citing the potential “deterioration of the UK's economic performance, including its large financial services sector.”
The pound and markets have since suffered, with the former plunging to a low not seen since 1985 on the news.
Pedro Antunes, executive director of economic outlook and analysis and deputy chief economist at the Conference Board of Canada, stated to Wealth Professional
that the nation has some safeguards in place to counter the pound’s freefall – but that it remains to be seen how far investors will allow markets to fall.
“We’ve heard from Mr. Carney already that the Bank of England was going to defend the currency and make sure the markets are well capitalized,” he said following the Brexit ‘Leave’ reveal. “But it’s hard to know how long the jitters will last.”
A number of financial services firms, including insurers, have weighed in in the aftermath. Michael Menhart, chief economist at global reinsurer Munich RE, stated that while the Brexit is “very regrettable” and a “major blow for the EU”, the real damage will occur should other EU nations follow suit. “Generally speaking, the immediate implications of Brexit are much less severe than the consequences of a Member State leaving the eurozone. It would be far more serious if Brexit were to lead to a further fragmentation of Europe,” he stated.
S&P’s rating cut follows a similar move from Moody’s, which lowered the UK’s credit rating outlook to negative on Friday.
It’s a potential fiscal blow to governments, as a lower rating will impact international borrowing costs, putting additional pressure on a nation already facing a decrease in funding, capital market inflow, and trade.
The S&P also stated the leave result will hamper government effectiveness, as it would "weaken the predictability, stability, and effectiveness of policymaking in the UK".
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