Worries about a messy Brexit continue to dog Britain's economy, warranting keeping the "negative" outlook on its sovereign debt, ratings agencies S&P and Fitch said Friday. The agencies affirmed their 'AA' high-grade rating on the government's long-term sovereign debt but pointed to lingering uncertainty about the split from the European Union.
While Britain and the EU have reached a transition deal, its implementation is conditioned on resolving thorny questions on the Irish border, the framework for a future commercial relationship and other matters, said S&P Global Ratings. "In our opinion, uncertainty persists for businesses given that there is still a chance that the transition agreement may not come into force," S&P said.
"The negative outlook reflects the risk of sustained economic weakness should merchandise and services exports from the UK lose access to key European markets, or should external financing diminish due to a loss of confidence in the economy's prospects."
While the British economy has proven "fairly resilient" since the June 2016 referendum on Brexit, "we project that the UK economy is likely underperform many of its advanced economy peers," S&P said. Fitch said the draft Brexit agreement in March meant that while the probability of a "disruptive exit from the EU has decreased markedly, it has not been removed completely."
"Moreover, we believe that no single post-Brexit relationship model with the EU commands either majority parliamentary or popular support," Fitch added. "This injects further uncertainty about the final outcome of the withdrawal negotiations."
Fitch noted that the British economy grew more than expected in 2017 in spite of Brexit uncertainty, but predicted growth would slow in the short-term before picking up again in 2019 "on the assumption of the transition agreement being finalized."
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