The specter of a messy Brexit means that the outlook for British sovereign debt remains negative, ratings agencies Standard & Poor’s (S&P) and Fitch said on Friday.
Both agencies affirmed their “AA” high-grade rating on British short and long-term sovereign debt, but they pointed to the recent deadlock in Brexit talks as a reason to worry about the British economy.
Six months since authorities in London triggered the process to exit the EU, a second phase of talks on future EU-British trade relations has yet to begin.
Failure to reach an agreement could leave Britain without privileged access to the largest market for its goods and services after it leaves the union in 2019.
“The limited time left for negotiating a framework for a future relationship, along with internal divisions among British policymakers, has increased the risk of a disorderly Brexit,” S&P said in a statement.
A clear sticking point is the exit payment, or the amount of money Britain will have to pay into the EU budget to honor commitments made during Britain’s EU membership, even as it prepares to leave.
British officials appear to have offered about ￡18 billion (US$24 billion), while the European side favors something close to 100 billion euros (US$116 billion).
With the UK Conservative Party’s loss of its parliamentary majority in June’s elections, the British negotiating position appears less than cohesive — increasing the chances of a “no-deal” Brexit, Fitch said.
“We believe that no single post-Brexit relationship with the EU commands either majority parliamentary or popular support. This increases the uncertainty about the outcome of the withdrawal negotiations,” Fitch said in a statement.
Separately, S&P on Friday raised Italy’s sovereign rating, citing the country’s recovering economy as well as rising investment and job creation.
The ratings agency kicked Italy’s credit rating up a notch, from “BBB-”
to “BBB” — still lower-medium grade, but with a stable outlook.
S&P said the Italian economy was expected to grow by 1.4 percent this year, before averaging 1.3 percent GDP growth into 2019.
In addition to keeping its budget deficit at 2.1 percent of GDP or below, Italy has also begun bringing down its very high sovereign debt levels. Gross national debt now stands at 126 percent of GDP.
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