S&P cuts European Union credit rating amid Brexit vote

Ratings agency Standard and Poor’s has cut its credit grade on Thursday for the European Union after the UK’s vote to leave the union a week earlier.

S&P said the cut from AA+ to AA came after reassessment “of cohesion within the EU, which we now consider to be a neutral rather than positive”.

The UK’s Brexit vote had triggered “greater uncertainty” over long term economic and financial planning.

On Monday, S&P cut the UK’s top AAA credit rating, saying Brexit could hit the economy and financial sector.

S&P said the change to its EU rating was because the previous assessment was based on all 28 states remaining in the bloc.

The agency said: “The rating action stems from S&P Global Ratings’ view that the UK government’s declared intention to leave the union lessens the supranational’s fiscal flexibility, while reflecting weakening political cohesion.

“Our baseline scenario was previously that all 28 member states would remain inside the EU. While we expect the remaining 27 members to reaffirm their commitment to the union, we think the UK’s departure will inevitably require new and complicated negotiations on the next seven-year budgetary framework.

“Going forward, revenue forecasting, long-term capital planning, and adjustments to key financial buffers of the EU will in our view be subject to greater uncertainty,” S&P said.

On Monday, S&P stripped Britain of its top credit grade by two notches, from AAA to AA, warning the Brexit vote would lead to “a less predictable, stable and effective policy framework in the UK”.

A number of economists have warned about the consequences of leaving the EU, with IHS Global Insight cutting its growth forecasts to 1.5% from 2% for 2016 and to 0.2% from 2.4% for 2017.

Also on Thursday, Bank of England governor Mark Carney signalled that interest rates could be cut over the summer to help boost the UK economy.

He said “some monetary policy easing” would be required in response to the Brexit vote.

Source: BBC