U.K. Wins Stronger Credit Assessment Following Johnson’s Victory
At S&P, the country’s outlook was shifted to stable from negative, with analysts citing the diminished risk of a no-deal Brexit.
(Bloomberg) -- Both S&P Global Ratings and Fitch Ratings improved their assessment of the U.K.’s credit outlook after Boris Johnson’s Conservative Party won a majority in last week’s election.
At S&P, the country’s outlook was shifted to stable from negative, with analysts citing the diminished risk of a no-deal Brexit. Meanwhile, Fitch took the U.K. off Rating Watch Negative -- removing the immediate threat of a downgrade -- but did maintain a negative outlook.
“In our view, the new government’s stronger mandate to progress through the next stage of Brexit negotiations reduces the potential for a disruptive no-deal departure,” S&P analysts led by Aarti Sakhuja wrote in a report Tuesday. “Despite the government’s current stance, we expect that the U.K. will seek, and the EU will grant, an extension beyond December 2020 to negotiate the future relationship between the two.”
S&P affirmed its credit rating of AA/A-1+. Fitch held the country at AA. The pound barely moved after the decisions were revealed, remaining around $1.31, representing a 1.5% loss against the greenback on Tuesday.
The news arrived hours after the U.K. prime minister revived the idea that he might yank the country out of the European Union without a pact. The pound plunged by the most since November 2018 in the aftermath, erasing its post-election gains.
While the Conservative’s decisive majority should reduce U.K. political volatility, questions over the post-Brexit relationship between the U.K. and the EU underpinned Fitch’s decision to leave the U.K. outlook as negative.
“The Negative Outlook reflects our view that uncertainty regarding the future UK-EU relationship will persist for some time, including the terms of the future UK-EU relationship in trade and other areas such as security cooperation,” Fitch analysts led by Michele Napolitano wrote in Tuesday’s report.
To contact the reporter on this story: Katherine Greifeld in New York at kgreifeld@bloomberg.net
To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Nick Baker
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