Standard & Poor's cuts EU credit rating after British vote to leave

UK

The European Union has suffered a downgrade of its long-term credit rating following the UK’s Brexit vote last week.

In a move that will increase the borrowing costs for the 28-member bloc, the credit ratings agency S&P said the EU should see its status as a safe haven for investors reduced to AA from AA+.

The agency said: “After the decision by the UK electorate to leave the EU … we have reassessed our opinion of cohesion within the EU, which we now consider to be a neutral rather than positive rating factor.”

International investors use credit agency reports to gauge the safety of their funds and the likelihood that their investments will become insolvent. Pension funds and other investors typically move their money to safe havens in times of uncertainty.

But concerns that the ripple effects of the Brexit vote will hit the profits of corporations in Europe, the US and Japan and hurt government finances have grown in recent days.

Earlier this week S&P became the last of the three major ratings agencies to strip the UK of its last AAA rating as it warned that the economic, fiscal and constitutional risks the country faced had increased following the EU referendum result.

The UK was placed on negative watch, which puts the government on notice of possible further downgrades, after S&P described the result of the vote as “a seminal event” that would “lead to a less predictable, stable and effective policy framework in the UK”.

The agency added that the vote to remain in Scotland and Northern Ireland “creates wider constitutional issues for the country as a whole”.

The EU’s outlook was considered stable after analysts at S&P said it was unlikely other countries would seek to follow the UK and leave the union.

S&P was the last of the big three ratings agencies to have a blue-chip rating on the UK’s credit-worthiness. Moody’s, which stripped the UK of its top-notch rating amid the austerity cuts of 2013, said last week it might further cut its view of the UK.

Powered by Guardian.co.ukThis article was written by Phillip Inman Economics correspondent, for The Guardian on Thursday 30th June 2016 19.34 Europe/London

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