Britain’s credit rating, pound take a hit as markets continue to react to Brexit vote
Prime Minister David Cameron insisted that Britain’s shock vote to leave the European Union won’t send the economy into a tailspin, even as Standard & Poor’s stripped the U.K. of its top credit rating.
As stock markets and the pound continued to decline, Cameron insisted Monday the British economy was robust and could withstand the shock waves.
“It is clear that markets are volatile, there are some companies considering their investments and we know this is going to be far from plain sailing,” Cameron told lawmakers as the House of Commons met for the first time since last week’s referendum. “However, we should take confidence from the fact that Britain is ready to confront what the future holds for us from a position of strength.”
Hours after he spoke, Standard & Poor’s knocked the U.K.’s sovereign rating by two notches, from AAA to AA, saying an EU exit “will lead to a less predictable, stable and effective policy framework in the U.K.”
The agency also said it was keeping a negative outlook on the rating, which means it could downgrade the country further. It cited risks to the economy and public finances, the pound’s role as an international reserve currency and “risks to the constitutional and economic integrity of the U.K.” as Scotland’s strong vote to remain in the EU could raise the prospect of another referendum on Scottish independence.
Despite the uncertainty fuelling financial instability, leaders in both Britain and the EU signalled there would be no immediate start to negotiations on an EU exit.
German Chancellor Angela Merkel met with her French and Italian counterparts and said “we agree there will be no formal or informal talks” until the British government officially declares its intention to quit by invoking Article 50 of the EU treaty.
The pound hit a new 31-year low Monday, dropping another 3.5 per cent to US$1.3199, while stock markets declined across Europe. Bank shares were particularly hard hit. Shares in Royal Bank of Scotland closed 15 per cent lower after dropping by as much as 25 per cent.