Last Friday, S&P Global Ratings and Fitch Ratings, both rating agencies, said that the credit rating of the United Kingdom remains at risk of another downgrade despite the extended deadline that is given for its departure from the European Union.
Fitch stated: “The agreement between the EU and the UK to further extend the process … to 31 October 2019 reduces but does not eliminate the risk of a ‘no-deal’ Brexit over the next six months,”
Earlier this month, Theresa May, the Prime Minister of the United Kingdom, secured the extension to the Brexit deadline after failing to bridge the divide within her own Conservative Party regarding the terms of the departure of Britain from the bloc.
The delay prevented the risk of an immediate no-deal Brexit which would present a shock to the fifth-biggest economy in the world, however, the uncertainty continues, weighing on many firms which have decided to cut back on investment.
S&P said that its negative outlook reflected the risk of continued economic weakness and an impact to the finances of the government if the United Kingdom lost access to European markets, investors took fright or the status of the sterling as a reserve currency came under pressure.
Both Fitch and S&P have a AA rating on British government debt.
S&P said that it could revise its outlook to stable if the negotiations with the European Union provided more certainty for the economy and if the key sectors retained access to European markets without penalizing tariffs or significant non-tariff barriers.
However, the rating agency disclosed that it saw no easy end to the Brexit impasse in parliament, and even if the United Kingdom avoided a no-deal Brexit, its outlook was still sobering.
S&P forecasted that the economy would grow by only 1.1 percent in 2019 – its slowest pace in a decade – before picking up only slightly over the next three years.
That slow growth was likely to constrain the ability of the government to raise public spending, despite the promises by Philip Hammond, the British Finance Minister, that he would be able to end austerity if the United Kingdom was able to secure a Brexit deal.
S&P also said that the extension to the deadline for agreeing to Britain’s exit from the European Union meant that both London and Brussels would have even less time to thrash out their future trading relationship, the planned second phase of their discussions.
It stated: “The originally envisaged 21 months was already a rather ambitious timeframe and the considerably shorter 14-month transition period may well prove to be inadequate, in our opinion.”