LONDON (Reuters) - Ratings agency Fitch said on Friday it no longer assumed that Britain would leave the European Union in a smooth transition and said a “no deal” Brexit could lead to a further downgrade of its sovereign credit rating.
“In Fitch’s view, an intensification of political divisions within the UK ... has increased the likelihood of an acrimonious and disruptive ‘no deal’ Brexit.
“Such an outcome would substantially disrupt customs, trade and economic activity, and has led Fitch to abandon its base case on which the ratings were previously predicated.”
Previously Fitch had assumed Britain would leave the EU in March next year with a transition deal in place and the outline of a future trade deal with the bloc.
But Prime Minister Theresa May has struggled to agree a deal that can secure the backing of Brussels and her own lawmakers in the Conservative Party.
Fitch currently rates British government debt at AA with a negative outlook, which means a further lowering of the rating is possible. Fitch cut its top-notch AAA rating on Britain in 2013, citing the outlook for weaker public finances.
S&P Global Ratings separately affirmed its ratings on the UK, with a negative outlook.
“The ratings are constrained by the uncertainty regarding the UK’s exit from and future relationship with the EU, which in our opinion will have important implications for its economy, its ability to attract inflows of capital and labor over time, and its public and external finances,” S&P said.
Ratings downgrades up to now have had little impact on investors’ appetite for British government debt, which is still seen as a safe asset at times of political or economic turmoil.
But downgrades are embarrassing for May’s Conservative government, which emphasized preserving the country’s AAA rating when it embarked on an austerity program in 2010.
Reporting by Kate Holton and David Milliken; additonal reporting by Shubham Kalia; editing by Andrew Roche and Leslie Adler