S&P Downgrades United Kingdom To “AA”

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It has been expected since Brexit that the credit rating agencies would chop the “AAA” rating of the United Kingdom. That happened today, and S&P cut its UK rating to “AA”. To make matters worse, the outlook for the rating was “negative”

The reasons were straightforward:

On June 27, 2016, S&P Global Ratings lowered its unsolicited long-term foreign and local currency sovereign credit ratings on the United Kingdom to ‘AA’ from ‘AAA’. The outlook on the long-term rating is negative. We affirmed the  unsolicited short-term foreign and local currency sovereign credit ratings on
the U.K. at ‘A-1+’.

We also lowered to ‘AA’ from ‘AAA’ our long-term issuer credit rating on the Bank of England (BoE) and the ratings on the debt programs of Network Rail Infrastructure Finance PLC. We affirmed the short-term ratings on the BoE and Network Rail Infrastructure Finance debt programs at ‘A-1+’. The outlook on
the long-term rating on the BoE is negative

And

The downgrade reflects our view that the “leave” result in the U.K.’s referendum on the country’s EU membership (“Brexit”) will weaken the predictability, stability, and effectiveness of policymaking in the U.K. and affect its economy, GDP growth, and fiscal and external balances. We have
revised our view of the U.K.’s institutional assessment and we no longer consider it to be a strength in our assessment of the U.K.’s key rating factors. The downgrade also reflects what we consider enhanced risks of a marked deterioration of external financing conditions in light of the U.K.’s extremely elevated level of gross external financing requirements (as a share of current account receipts and usable reserves). The Brexit result could lead to a deterioration of the U.K.’s economic performance, including its large
financial services sector, which is a major contributor to employment and public receipts. The result could also trigger a constitutional crisis if it leads to a second referendum on Scottish independence from the U.K.

Nothing new. Just a little more painful