S&P says could cut Britain's rating again before Brexit terms known

LONDON (Reuters) - S&P Global may not wait until the terms of Britain’s divorce from the European Union are known before it takes action on its rating again, most likely resulting in another cut, its sovereign ratings chief told Reuters on Tuesday.

A statue of Winston Churchill is seen in front of Big Ben and the Houses of Parliament in London, Britain March 29, 2017. REUTERS/Hannah McKay

The firm stripped Britain of its coveted triple-A rating after the Brexit vote last June, downgrading it by two notches to AA and assigning a negative outlook.

Asked if it would wait until the end of the Brexit negotiations to take another ratings action on Britain, Moritz Kraemer said: “No, we don’t have to wait.”

“We will review the UK every six months... and if necessary more often... We will be watching the economic implications, the implications for the public finances, the constitutional implications like the whole Scotland situation... and things like the currency and if it will maintain its reserve status.”

Kraemer, speaking on the sidelines of a Euromoney conference, said the next rating action would most likely be a cut because of the negative outlook.

Almost a year to the day since voters decided to leave the EU, the Brexit strategy debate within Britain has been opened up again by Prime Minister Theresa May’s unexpected failure to win a parliamentary majority in the June 8 ballot.

Some analysts have argued a likely tie-up between her Conservatives and the DUP could ensure a softer stance because the small northern Irish party will not support a deal that creates a hard border with its Republic of Ireland neighbours.

But Kraemer said this uncertainty over the government’s stance only raised the prospect for negotiations finishing with no deal - the most economically damaging outcome.

“With dependence on the DUP, a customs union is becoming a bit more likely...But if we have a customs union then that means Britain cannot strike trade deals with other countries and that might create controversy with some in the Conservative party.

“It might just come to nothing, that is the risk. That is how a hard Brexit would come about and we think that would be very detrimental for the UK economy.”

The inconclusive elections have also raised the prospect of another vote later this year, which Kraemer said would be a negative for the rating if it delayed Brexit negotiations.

“There is no time to be wasted. If we have another hiatus with Brussels because of an election campaign going on, then that in itself would, all other things being equal, be negative.”

Reporting by John Geddie; Editing by Dhara Ranasinghe and Hugh Lawson