S&P raises UK’s sovereign rating outlook to ‘stable’ after Conservative election landslide

Rating agency now assumes lower risk of a no-deal Brexit

Commuters use the London underground, Wednesday, Dec. 11, 2019, backdropped by The Shard building. Britain will go to the polls tomorrow Dec. 12, to vote in a pre-Christmas general election. (AP Photo/Thanassis Stavrakis)

Standard & Poor's has revised the UK's sovereign rating outlook to stable from negative, after the Conservative party won a landslide victory last Thursday.

The ratings agency also affirmed its "AA/A-1+" unsolicited long and short-term foreign and local currency sovereign credit ratings for the country.

In a report released on Tuesday, S&P said it was working on the assumption that Boris Johnson’s majority will clear the passage of the withdrawal agreement bill through UK Parliament, reducing the risk of a no-deal Brexit.

S&P said uncertainty remained about Britain's future relationship with the European Union but it expects the country to seek an extension of the transition period beyond December 2020.

"A smooth passage through parliament of the withdrawal agreement bill, which spells out the terms of the UK's departure from the EU, is now our baseline expectation," the report said.

"This would mean that the UK leaves the EU by the end of January 2020, at which time negotiations on the future relationship between the two will start.

“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.”

The rating agency said it could revise the outlook to negative again if British merchandise and services exports lost access to key European markets, if external financing diminished, or if sterling's status as a reserve currency came under pressure.

S&P said the outlook might also turn negative again if it considers a high risk of constitutional challenges within Britain.

But the agency said it could revise its outlook to positive if trade negotiations with the EU resulted in key UK sectors, including services, keeping access to European markets without tariffs or significant non-tariff barriers when the transition period ended.

S&P said if the country does not request an extension of the Brexit transition period from the EU, access to European customers for UK businesses would revert to terms of the World Trade Organisation on January 1, 2021.

S&P said this would hurt the British economy because of supply chain disruption and significant tariffs on key markets, such as automotive, agriculture and retail.

 

S&P said determining the UK's long-term growth potential outside the EU is challenging but much would rely on the government’s economic policy and trade relations with other nations.

The Conservatives won 365 parliamentary seats in last week's election, with opposition Labour party winning only 202, a drop of 60 from the 2017 vote.

With Labour bruised by the damaging result, the search for a replacement for leader Jeremy Corbyn continues.

Former shadow Brexit secretary Keir Starmer told The Guardian the party needed to return to being a "broad church".

Mr Starmer is tipped to throw his hat into the ring for leadership, along with members of parliament including Rebecca Long-Bailey and Jessica Philips. The leader is set to be elected in March 2020.

EDITOR'S PICKS
NEWSLETTERS