A demonstrator prepares a flag reading ‘Leave means leave’ near the Houses of Parliament in London, U.K. (Photographer: Simon Dawson/Bloomberg)  

U.K. Rating at Risk of Downgrade Amid No-Deal Brexit Concern

(Bloomberg) -- The U.K. has been put on a formal downgrade warning by Fitch Ratings, which pointed to increased risks that the country could tumble out of the European Union without an agreement in place.

In a surprise move that came outside of its normal ratings calendar, Fitch placed the AA grade on rating watch negative, and said that a no deal outcome, or a new relationship with the EU that “undermines” the economy, may result in a downgrade.

The U.K is due to leave the bloc -- with or without a deal -- on March 29, and Fitch indicated that it will look to make a decision on the rating in the first half of this year.

“A ‘no-deal’ Brexit would lead to substantial disruption to U.K. economic and trade prospects, at least in the near term,” it said. The statement cited “heightened uncertainty," adding that avoiding a chaotic exit could remove the risk of a cut.

Concern over Britain’s economic future has been growing as Prime Minister Theresa May scrambles to get fresh concessions from the EU in order to put a reformed divorce deal to a vote in the House of Commons as soon as next week. She was dealt a blow Wednesday with the defection of three high-profile members from her Conservative Party, who will join a group of former Labour politicians who also quit their party.

Fitch said that the scope for fundamental renegotiation of the withdrawal agreement appears limited and that for an accord to be approved by the U.K. ahead of the March 29 deadline, “the government would need to substantially widen its support.”

It notes that while an extension of the Article 50 withdrawal process is possible, that would require the agreement of EU member states.

“The macroeconomic outlook is highly sensitive to Brexit developments in the next few weeks,” Fitch said.

The pound fell against the dollar after the statement, and was around $1.3050 as of 10:27 p.m. in London. Amid the back and forth on Brexit, it’s swung between $1.24 and $1.32 since the start of the year.

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