Britain's political instability to harm growth - S&P economist

PARIS (Reuters) - Britain’s political instability is likely to hurt economic growth this year and there is no indication that last week’s inconclusive election result will mean a softer Brexit, a senior Standard & Poor’s (S&P) economist said on Monday.

Pedestrians walk past the Houses of Parliament, in central London, Britain April 18, 2017. REUTERS/Toby Melville

S&P rates the UK at AA, with a negative outlook, after stripping it of its triple-A rating immediately after last year’s vote to leave the European Union.

“For the time being, the outlook remains negative,” S&P chief economist for Europe, Middle East and Africa Jean-Michel Six told the AJEF association of financial journalists in Paris.

“In terms of the outlook for growth, it’s clear that things are not going in the right direction,” he said, adding that strong growth in the second half of 2016 was likely to have been a blip.

Britain enjoyed “the best of both worlds” immediately after Brexit, when its exporters got a boost from a weak pound and consumers did not immediately see prices rise, he said, but inflation was now starting to hurt domestic demand.

That was likely to be compounded by last week’s elections where Conservative Prime Minister Theresa May lost her majority.

“This latest bit of instability can only weaken the business environment and consumer confidence,” Six said.

Related Coverage

“This political crisis is probably going to last until the end of the year. We don’t know how long it’s going to last. When will the palace coup take place?”

Six said the confused positions of the main parties in the campaign made it impossible to say that British voters had signalled they wanted a “soft Brexit”, in which Britain would remain in the single market.

“I think it’s much too early to say that the result of the elections ... should lead to a soft Brexit rather than a hard Brexit,” he said.

“On the contrary, I think it’s possible to imagine a scenario, likely but not certain, in which Mrs May seeks to push for a very hard line towards the EU to show to her own party that she’s holding the course.”

Reporting by Michel Rose; Writing by Sudip Kar-Gupta; Editing by Andrew Callus and Robin Pomeroy