Brexit Update: UK Credit Ratings Slashed; More Cuts Could be Coming
UK Credit Ratings Slashed; More Cuts Could be Coming
The United Kingdom’s (UK) credit rating has been the most recent casualty of last Thursday’s referendum to leave the European Union (EU). Yesterday’s remarks from George Osborne, Chancellor of the Exchequer, have done little to affect market expectations of long-term instability. Osborne said the UK “has the strongest major advanced economy in the world,” and was coming from a “position of strength.” Despite these remarks, credit rating agencies have acted swiftly to cut the UK’s ratings.
Moody’s acted first, changing the UK’s sovereign rating from stable to negative, anticipating a “prolonged period of uncertainty.” S&P, who had previously held out its AAA rating, cut the UK’s rating down by two notches to AA and revised its outlook to negative. Fitch also lowered its rating to AA, anticipating an “abrupt slowdown” in the British economy. All three of the major credit rating agencies have indicated that further downgrades could follow, especially considering a possible initiative from Scotland to rejoin the EU. Furthermore, analysts and the three agencies forecast two to three years of recession for the UK.
£1 GBP = $1.34 USD
€1 EUR = $1.11 USD
(as of 9:30 AM EST, 6/28/2016)
UK Representatives Attend EU Parliament Session – When UK representatives attended today’s EU Parliament session they received a less than warm welcome. European Commission (EC) President Jean-Claude Juncker said, “The British people voted in favor of the exit. Why are you here?
Merkel Warns There Will be No “Cherry Picking” in Negotiations – Prior to meeting with UK Prime Minister David Cameron, German Chancellor Angela Merkel set firm boundaries for Brexit negotiations, explaining that the EU would not allow the UK to cherry pick the most favorable terms.
Markets See Some Stabilization – After $3 trillion in stark market losses, global markets saw slight improvements. The British pound improved somewhat and US indexes saw marginal gains.
Brexit Could Have “Dire Implications” for UK – Commentators warn that Brexit could seriously damage the British economy by cutting financial services jobs and restricting access to European financial markets.