UK credit ratings cut: S&P and Fitch downgrade post-Brexit vote
UK credit ratings cut: S&P and Fitch downgrade post-Brexit vote
  Standard & Poor's and Fitch on Monday downgraded the United  Kingdom's credit rating.  S&P downgraded the nation by two notches, from "AAA" to "AA," citing last  week's referendum that approved a British exit from the European  Union. Fitch, meanwhile, moved its rating from "AA+" to "AA."  "In our opinion, this outcome is a seminal event, and will lead  to a less predictable, stable, and effective policy framework in  the U.K. We have reassessed our view of the U.K.'s institutional  assessment and now no longer consider it a strength in our  assessment of the rating," the ratings agency said in a news  release.  Fitch, meanwhile, said that "uncertainty following the referendum  outcome will induce an abrupt slowdown in short-term GDP growth,  as businesses defer investment and consider changes to the legal  and regulatory environment." The agency said it had revised down  its forecast for the U.K.'s 2016 real GDP growth to 1.6 percent  from 1.9 percent.  Fitch's 2017 and 2018 GDP forecasts were also both revised to 0.9  percent growth from 2 percent.  S&P expressed concern that wide-margin votes to remain within  the EU from Scotland and Northern Ireland create "wider  constitutional issues for the country as a whole." The ratings  agency said its downgrade notes the risk of a "marked  deterioration of external financing conditions in light of the  U.K.'s extremely elevated level of gross external financing  requirements."  Fitch also cited the possibility of Scottish independence, noting  that such a vote "would be negative for the U.K.'s rating, as it  would lead to a rise in the ratio of government debt/GDP,  increase the size of the U.K.'s external balance sheet and  potentially generate uncertainty in the banking system, for  example in the event of uncertainty over Scotland's currency  arrangement."  S&P and Fitch also both warned that future events could  result in further downgrades.  "The negative outlook reflects the risk to economic prospects,  fiscal and external performance, and the role of sterling as a  reserve currency, as well as risks to the constitutional and  economic integrity of the U.K. if there is another referendum on  Scottish independence," S&P said.  The United Kingdom voted on Thursday by a margin of more than 1  million people to leave the political and economic union —  an event that has been regularly called Brexit. Equities markets  saw significant losses as news of the vote spread, and currencies  swung wildly.  Much remains to be seen about what the exit will look like —  or even if it will actually occur.  Yet that uncertainty is at the very core of markets' concerns. As EU  leadership and British representatives negotiate the terms of  their break-up, the ambiguity will likely freeze some investment  and could lead to economic recession, some economists have  argued.  That's all not to mention that the U.K. may have a leadership  crisis now that Prime Minister David Cameron has  announced he will step down by October.  Even beyond those immediate considerations, the U.K.'s economic  prospects could be damaged by more expensive "terms for exports  to the EU, lower immigration and a reduction in foreign direct  investment," according to Fitch.  CORRECTION: An earlier headline misidentified the U.K.'s  previous rating from Fitch.