UK Credit Ratings Downgraded

The UK has seen a downgrade in its credit ratings in the wake of the Brexit vote. Ratings agencies took the decision to downgrade the UK’s ranking as a borrower following the public’s vote in favour of leaving the EU and the resultant economic turmoil.

One of the main credit rating agencies, S&P, previously gave the UK a AAA credit rating, the highest offered by the agency. It has now downgraded the credit rating assigned to the country to AA, two levels below the previous rating. Previously, S&P had been the only credit rating agency to maintain a top-level rating for the UK. The agency said that the UK public’s decision to exit the European Union was likely to “weaken the predictability, stability, and effectiveness of policymaking in the UK” and this was reflected by the downgrade in the country’s credit rating.

Another major credit agency, Fitch, reduced the UK’s former AA+ credit rating to a lower AA. As a key reason for the decision to downgrade, Fitch cited the expectation that the short term would see an “abrupt slowdown” in the UK’s growth.

The downgrading of credit ratings for the UK by S&P and Fitch follows a previous move by Moody’s, another ratings agency. On Friday, following the revelation that the UK had chosen to leave the EU, Moody’s downgraded the credit outlook of the UK from “stable” to “negative.” In explanation for this move, Moody’s talked of a “prolonged period of uncertainty” that was likely to follow the vote in favour of a Brexit, and said that the result of the referendum was likely to have “negative implications for the country’s medium-term growth outlook.” The negative impact on economic growth would, Moody’s predicted, outweigh any financial benefits gained from not paying into the EU.

These cuts to the country’s credit rating mean that the UK is now perceived as having a higher risk profile when borrowing. This can make it more costly for the government to borrow money. In international financial markets, as with credit for individuals and businesses, a poorer credit ratings tend to be reflected by higher interest rates.

Just shortly before S&P and Fitch announced the downgrades in the credit ratings issued to the UK, Chancellor George Osborne sought to issue reassurance about the future of the British economy. He insisted that though there would be a need to “adjust” to a new situation, the UK economy would approach its future “from a position of strength.”

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