UK risks loosing triple-A rating if it exits EU: S&P

news
13 June 2015

With the UK Prime Minister David Cameron's decision to hold a referendum on EU membership, the UK stood a greater risk of losing its triple-A credit score, according to Standard & Poor's, the only big ratings agency which still gives the UK the top ranking.

Lowering its outlook for UK government debt to ''negative'' from ''stable'', the agency highlighted serious risks to the pound and the ability of the country to attract foreign investment in the event it moved away from the EU.

Additionally, there was the prospect of diversion of attention away from the UK's pressing economic problems, in the run up to the vote.

Other forecasters, too had warned about the potential damage to the UK economy from holding a referendum. S&P further considered the implications of a vote to leave, warning so-called ''Brexit'' might put the country's public finances in jeopardy as it struggled to finance its funding gaps.

''The decision of the newly elected Conservative majority government to hold a referendum on the UK's EU membership by 2017 represents a risk to growth prospects for the UK's financial services and export sectors, as well as the wider economy,'' S&P wrote in a note explaining its outlook change.

According to S&P there were important risks to the UK's longer-term economic prospects if it were to leave the EU, pointing to the impact on financial services and exports. Cutting the UK's status from ''stable'', the agency added that there was a one-in-three probability the UK would lose its AAA rating within the next two years.

Both Moodys' and Fitch had downgraded the UK in 2013 as signs emerged that national debt was not falling.

''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,'' S&P said.

According to S&P the referendum was a sign that the UK economic policymaking was being influenced by party politics, as David Cameron agreed to the referendum to contain the rise of Ukip and to unite his own party.

 





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