S&P Global’s outlook for a healthy UK credit rating after crashing out of the EU is poor
The predictions of credit rating agencies should not be treated as gospel, of course. The same crew awarded gold stars to many billions-worth of US sub-prime debt that turned out to be crud. Equally, however, rating agencies survived that fiasco a decade ago because financial markets tend to value the views of outsiders who take a cold look at financial risks and offer a detached opinion. It is why S&P Global’s warning that a no-deal Brexit would cause a long, if “moderate”, recession in the UK should be taken at face value. This is not Project Fear. It is a sober assessment of the odds.
S&P also starts from the reasonable premise that the UK policymakers would do their best to limit the damage. The Bank of England, it expects, would ignore temporarily higher inflation and cut interest rates to zero and possibly start buying corporate bonds to stimulate the economy. S&P also expects the UK and EU to put in place “at least some safeguarding measures”.
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