The UK’s credit rating could come under pressure if there is a no-deal Brexit that badly dents the country’s economic recovery, ratings agency S&P Global has said.
It comes after Prime Minister Boris Johnson and EU Commission president Ursula von der Leyen pledged to extend Brexit talks beyond Sunday. The pound rose sharply today amid positive noises from both sides.
Yet businesses remain greatly concerned that the two sides could fail to reach a deal, leading to higher tariffs and disruption. Britain’s budget watchdog has said such an outcome could wipe two per cent off the economy next year.
S&P Global said the “economic and political consequences” of failing to reach a trade agreement would be large. It said it thinks the two sides will therefore reach a deal.
No-deal Brexit ‘would hit UK attractiveness’
“A no-deal scenario would have important implications for the UK economy, the country’s ability to attract inflows of capital and labour over time, and its public and external finances,” the agency said in a note today.
“Our sovereign ratings on the UK could come under downward pressure if the economic recovery is significantly weaker than we anticipate, making fiscal consolidation more challenging.”
The UK government has borrowed record amounts this year. It has pushed up the total public debt pile to its highest level since the 1960s.
S&P argued that lower growth resulting from a no-deal Brexit could have a negative effect on the debt-to-GDP ratio.
The agency currently gives the UK a sovereign rating of AA. That denotes a “high grade” investment but is below the top level AAA.
S&P warned that a “prolonged” loss of access to EU markets for merchandise and services exporters would be damaging. It said the rating could also be threatened if foreign investors’ appetite for the pound or UK assets falls.