S&P affirmed United Kingdom “AA” rating with negative outlook
Ratings agency warned Brexit may hurt Pound’s global reserve role
GBP/USD little-changed after S&P UK assessment update release
The British Pound showed a reserved reaction against its major counterparts after S&P Global Credit Ratings Agency released its United Kingdom survey. The report said Brexit represents a significant risk to the UK’s track record of strong economic performance. S&P affirmed the United Kingdom’s long and short term sovereign credit rating at “AA” while maintaining a negative outlook.
This conclusion reflects the continued institutional and economic uncertainty surrounding Brexit negotiations and what will emerge after their departure. Since the UK’s vote to exit the European Union, the British Pound has become sensitive to talks about Brexit negotiations. In early October, Sterling witnessed a massive depreciation against its leading peers when French President Francois Hollande called for tough Brexit talks.
Looking ahead, S&P sees three major concerns that could result in lowering its UK credit rating further. First, Sterling may lose its status as a reserve currency if sharp falls in its value reduce confidence. Second, public finances or GDP per capita may weaken markedly beyond their current expectations. Finally, S&P said it may lower its rating if significant constitutional issues arise and create further financial and economic uncertainty.
Additional S&P remarks on the UK outlook:
The “leave” result has led to a less predictable and stable policy framework for the UK
Outlook considers that 44% of the UK goods and services exports are to the EU single market block
Given Brexit uncertainties and the likely fall in investment, S&P forecasts a slowdown in 2017-2019, with GDP averaging 1%
Not clear if EU will permit UK to access the single market on existing tariff-free terms
Brexit process may take much longer after UK invokes Article 50 of the Lisbon Treaty by the end of March 2017
Leaving EU significantly diminishes capacity to influence EU policy on key sectors of the UK economy, such as financial services
Brexit Threatens British Pound Reserve Currency Status, Says S&P
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karlnite on May 11st, 2024 at 09:13 UTC »
This sounds like “Britain took a slight slip, why has the entire world not given up on them entirely all at once?”. Uhhh cause why would they? If you give up on the UK, well it’s just cheaper for me to put my bet with them. If I think they’re not doing as bad as you think they are doing, well its not not that risky for me to back them either. Clearly not everyone thinks its a lost cause and sees future gains or growth there.
trollingguru on May 11st, 2024 at 05:01 UTC »
No one stores any British pounds as a global reserve. The imf designates which countries have special drawing rights or SDR. Most central banks hold a basket of currencies in their reserves for foreign exchange reasons. London is also a major financial hub which makes it a major player in global finance. They are some of the most sophisticated finance and banking providers in the world. So a lot of excess capital from less sophisticated countries go there
phiwong on May 11st, 2024 at 04:51 UTC »
It seems about right? The UK is the 6th largest economy in the world and was the 5th until a few years ago. Broadly speaking, if a country trades a lot and allows free flow of capital, their currency would be higher on the list.
China is a bit of an exception because it imposes capital controls which makes it less desirable to hold. India is definitely rising and will likely increasingly be a bigger player.
The UK also benefits from having one of the largest financial centers in the world in London. Reserve currencies are held in banks after all. So stability, confidence and convenience plays a role too.