The United Kingdom (UK) joins the United States in losing its AAA credit rating from S&P.
The credit agency announced its downgrade of the UK on Monday, shortly after Moody’s cut the outlook on Britain’s economy. "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.,” the ratings agency said in a press release.
The move came after several British stocks suffered two days of double-digit declines, including Barclay’s, which fell a further 20% on Monday trading. The British pound has fallen further. The currency reached its lowest point since 1985 very shortly after the country’s referendum, in which it voted to leave the European Union (EU). On Monday, the currency fell even further, worth just 1.32 against the U.S. dollar and 1.20 against the euro.
The 10-year UK government bond also fell to its lowest point in history, although it remains positive and far above the negative yield of German bonds of the same duration.
The pound also remains stronger relative to the euro than throughout most of the last decade, however, as European markets were hit harder than Britain’s on the Brexit decision. Spain, Germany, Italy, and France all suffered stock market declines worse than Britain’s in the immediate aftermath of the Brexit vote, as traders bet on political uncertainty spreading throughout the EU.
Nonetheless, S&P is keeping its focus on the UK, seeing the Brexit decision as a threat to the centuries-old unification of Scotland and England. Moody’s went on to say that it is a 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."
Already, some economists are warning a recession is inevitable for the United Kingdom, although Bank of England Governor Mark Carney has publicly assured investors that it will do whatever it takes to ensure liquidity, help stave off a bank run, and keep credit markets buoyant in the coming months.
Meanwhile, popular newspapers like The Daily Mail and The Sun, which had pushed heavily for a Brexit, have since written cautionary pieces on the Brexit. Warning that the cost of travel, food, and communications might rise because of the Brexit decision, Remain campaigners are complaining that the Leave camp failed to properly inform voters of the economic implications of a Brexit.
British Prime Minister David Cameron is also being pressured to step up enacting the removal of Britain from the European Union, with some hardliners arguing he is backing off from promises to enact Article 50 of the Lisbon Treaty immediately, as he promised before the referendum took place. That triggering would start a two-year timeline in which Britain would be required to leave the EU.