U.K. credit rating cut; market, pound plunge
Cameron insists British economy up to challenge
LONDON — Prime Minister David Cameron insisted Monday that Britain’s shock vote to leave the European Union won’t send the economy into a tailspin, even as the country was stripped of its top credit rating and stock markets and the pound plunged downward.
Calling the vote a “seminal event” that “will lead to a less predictable, stable and effective policy framework in the U.K.,” Standard & Poor’s knocked the U.K.’s sovereign rating by two notches, from AAA to AA. Hours later, Fitch Ratings followed suit, downgrading the country to AA, from AA+.
Both agencies said they were keeping a negative outlook on their ratings, which means they could downgrade the country further. Standard and Poor’s 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.
Speaking earlier in the day as the House of Commons met for the first time since last week’s referendum, Cameron insisted the British economy was robust and could withstand the shock waves.
Position of strength
“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 said. “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.”
Despite the uncertainty fueling financial instability, leaders in Britain and the EU signaled 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.
Process on hold
The statement appeared to scotch hopes by Conservative lawmaker Boris Johnson and his Vote Leave campaign to hold preliminary talks on the general outlines of a deal before Article 50 triggers a two-year countdown to a British exit.
Cameron announced last week he would resign by the fall after failing to persuade a majority of voters to back continued EU membership, saying his successor should be the one to navigate Britain’s departure from the EU.
Cameron said he spoke Monday with Merkel and French President Francois Hollande, and made plain this was not the time to start the process.
“We have discussed the need to prepare for the negotiations and in particular the fact that the British government will not be triggering Article 50 at this stage,” he said.
Kerry backs leaders
Meanwhile, Secretary of State John Kerry, in Brussels and London to address fallout from the vote, said the U.S. has “immense confidence in … the leadership on both sides of the Channel” to negotiate a deal — and urged the EU not to treat Britain in a “revengeful” manner.
Amid signs the uncertainty was hitting business confidence, a leading business group said 20 percent of its members planned to move some of their operations out of the U.K. The Institute of Directors said a survey of its 1,000 members showed three out of four believe Britain’s exit from the EU will be bad for business. About a quarter said they would freeze hiring and 5 percent said they would cut jobs.
The pound hit a new 31-year low Monday, dropping another 3.5 percent to $1.3199, while stock markets declined across Europe and the U.S.