Britain's credit rating could be downgraded by as much as two notches if we leave the EU, Standard & Poor's told City A.M. yesterday.
The UK has a AAA rating, but S&P's chief sovereign rating officer Moritz Kraemer said it could drop one notch, to AA with a vote to leave the EU, and drop two if relations between the UK and Brussels deteriorate, giving the UK an A rating.
Kraemer said that Brexit also raises concerns of another Scottish referendum, which would further undermine market stability.
The two-notch downgrade would also mean Britain would be deemed less credit worthy than the EU, which is currently rated AA+.
Read more: EU outlook revised to “negative”
Will Straw, executive director of Britain Stronger In Europe, said:
This is the strongest indication yet of the dangers of leaving the EU. We cannot put our AAA credit rating at risk – it would increase borrowing costs leading to cuts to public spending or tax rises on hardworking families across Britain.
But, a spokesman for Vote Leave, the largest body campaigning to leave the EU, countered:
Norway, Liechtenstein and Switzerland all have AAA ratings from Standard & Poor's and are outside of the EU. There is no reason to believe that the UK would not be the same. We will negotiate a UK-EU relationship based on free trade and friendly cooperation so there will not be disruption to the UK economy that would warrant a downgrade.
S&P first revised the UK's outlook to negative in June over fears Britain could leave the EU saying: “A possible UK departure from the EU raises questions about the financing of the economy's large twin deficits and high short-term external debt.”
There would be “implications for external financing and the role of sterling as a reserve currency, although this would also depend on what sort of relationship with Europe the UK could negotiate. [Brexit] represents a risk to growth prospects for the UK's financial services and export sectors, as well as the wider economy,” the report said.
Moody’s also warned earlier this year that a vote to leave the EU could cut the UK’s rating.