Britain suffered further blows to its economic standing on Monday as two top ratings agencies downgraded its sovereign credit score, judging last week’s vote to leave the European Union would hurt its economy.
Standard & Poor’s stripped Britain of its last remaining top-notch credit rating, dropping it by two grades from “AAA” to “AA” and warning more downgrades could follow.
Fitch Ratings also downgraded its ranking for Britain’s creditworthiness by one notch, and similarly said more cuts could follow.
The ratings agencies effectively added a rubber stamp to the market’s view of the Brexit vote, as sterling tanked to a 31-year low against the U.S. dollar on Monday and stock markets fell for a second trading day since the referendum last Thursday.
It was the first time S&P had chopped an AAA-rated sovereign credit rating by two notches in one move.
“In our opinion, this (referendum) outcome is a seminal event, and will lead to a less predictable, stable, and effective policy framework in the UK,” S&P said in a statement.
Finance minister George Osborne said on Monday the British economy was strong enough to cope with the volatility caused by Thursday’s referendum.
But the vote has plunged the country into a political crisis, with the ruling Conservative Party looking for a new leader after Prime Minister David Cameron said he would stay on until October, delaying the launch of negotiations with the EU and leaving the country’s economic prospects under a cloud of uncertainty.
The added prospect of a new independence referendum in Scotland, which voted strongly to stay in the EU, threatens the constitutional and economic integrity of the United Kingdom, S&P warned.
Fitch more than halved its growth forecast for Britain’s economy in 2017 and 2018 to just 0.9 percent for both years, from 2.0 percent previously.
Long-dated U.S. Treasury yields fell to session lows after S&P’s decision. British 10-year government borrowing costs had already fallen below 1.0 percent for the first time during European trading hours.
S&P warned financial firms, especially foreign ones, might look to other destinations for investment after Britain leaves the EU.
The remaining major ratings agency, Moody’s, which took away Britain’s AAA-rating in 2013 because of the country’s high levels of debt and slow growth, said on Friday it could cut the rating further.
Moody’s will downgrade the credit rating outlook for major British banks to “negative” on Tuesday because of the fallout from the vote to leave the EU, Sky News reported, citing sources.
Protecting Britain’s credit rating was a top priority of Conservative finance minister George Osborne when he came to power in 2010.
(Additional reporting by Jamie McGeever; editing by William Schomberg and Andrew Roche)