Wednesday 19 December 2018

S&P warns 'disorderly' Brexit may hit UK rating

UK Prime Minister Theresa May’s cabinet is divided
UK Prime Minister Theresa May’s cabinet is divided

William Schomberg and Colm Kelpie

A disorderly Brexit as a result of Britain misjudging the "self-preservation" instincts of the EU could lead to a further downgrade of the UK's sovereign credit rating, S&P Global has said.

"The UK risks further adverse economic, financial, and ratings outcomes if it ignores the EU's rationale of self-preservation," S&P's top sovereign analyst Moritz Kraemer said in a report.

He was referring to the EU needing to avoid a domino effect of other countries wanting to leave the bloc if they perceived Britain received a "lenient" post-Brexit trade deal.

S&P cut Britain's previously triple-A rating by two-notches to AA with a negative outlook, after the mid-2016 Brexit vote.

"The UK government at the time misread the electorate's mood when it invited it to vote on EU membership.

"It is hopefully not also misjudging central convictions held across the Channel. Otherwise, a disorderly Brexit could become increasingly likely. Such a turn of events would bring renewed downward pressure to Britain's sovereign rating," Mr Kraemer added.

It comes as Downing Street ruled the UK out of staying in any customs union with the EU.

The extent of any British post-Brexit involvement in the EU's customs union - which binds members into a trade bloc with common external tariffs - has become a major issue of contention inside British Prime Minister Theresa May's divided government and Conservative Party.

Membership of the customs union, or any customs union after Brexit, would prevent London from striking trade deals with countries outside the EU in future.

Meanwhile, Britain's economy slowed sharply in January, according to a survey that cast doubt on growing expectations among investors that the Bank of England might be gearing up to raise interest rates again in the coming months.

Sterling fell and British government bonds briefly rose after financial data firm IHS Markit said growth in the world's sixth-biggest economy looked set to slow to 0.3pc in the first quarter, down from 0.5pc in the last three months of 2017.

The slowdown was driven mostly by Britain's dominant services sector, where activity growth fell to a 16-month low of 53 last month.

By contrast, the Irish services sector made a strong start to the year as faster growth of new business resulted in another sharp increase in activity.

The rate of new order growth accelerated in January and was substantial. The headline seasonally adjusted Business Activity Index posted 59.8 in January. (Additional reporting Reuters)

Irish Independent

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