S&P Holds UK Rating Steady but With Negative Outlook

Economy

Published: October 27, 2018 8:05 am

Last Updated: January 11, 2020 3:46 pm

S&P has held its rating of the United Kingdom at AA/A-1+. It is the second highest grade S&P gives sovereign debt. However, the ratings agency’s outlook for the debt is “negative, a reflection of concerns about Brexit and the economic challenges which involve trade viability as it breaks from the EU.”

What could move the rating down, or alternatively raise the outlook to stable? In each case, the decision hinges on the ability of the government to make a smooth transition out of the European Union or decisions that would result in a messy and harmful transition:

We could lower the ratings under a scenario in which a disorderly Brexit is increasingly certain. We define a disorderly Brexit as one which would either significantly limit U.K. manufacturing and services access to key European markets, or subject them to tariffs and nontariff barriers high enough to reduce their ability to compete.

Or:

We could lower the ratings under a scenario in which a disorderly Brexit is increasingly certain. We define a disorderly Brexit as one which would either significantly limit U.K. manufacturing and services access to key European markets, or subject them to tariffs and nontariff barriers high enough to reduce their ability to compete.

As is the case with U.S. debt, and that of other large, fundamentally strong economies, a rating change is unlikely to drive investors of out U.K. sovereign debt. As is the case with government paper from nations like Canada or Australia, it remains stable enough that it is a safe haven if global markets become riskier.

For the time being, the S&P decision means very little.