Political instability could damage the UK’s growth and credit ratings, say agencies

13 Jun 17

Ratings agencies have warned the inconclusive result of the election last week could damage the UK’s economic growth and credit ratings.

Moody’s said the likely delay to the negotiations on Britain leaving the European Union could lead to a drop in credit ratings, which indicate to investors the risk level of investing in a country.

The agency ranks Britain with a low credit risk Aa1 rating – one below the top Aaa.

A senior Standard & Poor’s economist also said yesterday Britain had enjoyed the “best of both worlds” immediately after the Brexit vote as exporters got a boost from a weak pound and consumers did not see prices rise.

But he said inflation was now beginning to bite and that last week’s election result was the “latest bit of instability [that] can only weaken the business environment and consumer confidence.”

Office for National Statistics figures showed today inflation rose again last month – to 2.9%.

Moody’s said, in a statement: "While it is unclear at this stage which changes to its strategy the government will contemplate, it may be that 'softer' versions of Brexit will now be considered.

"This could potentially include a request to remain inside the EU single market or the customs union."

This could be credit positive, the agency predicted.  S & P’s credit rating for the UK is AA – meaning a country has a ‘strong’ capacity for meeting financial obligations and is one down from AAA.

Julia Goldsworthy , chair of CIPFA’s Brexit Advisory Commission for Public Services, commented on new environment secretary Michael Gove suggesting to Sky News today the government would “work with everyone” for an effective Brexit deal.

She said it was critical that ‘everyone’ should include public services for the sake of the people who rely on them.

“The Brexit Advisory Commission for Public Services stands ready to support the government in understanding the risks and opportunities of Brexit for the sector during the negotiation process,” she added.

The commission was launched by CIPFA in April.

The Conservatives and Democratic Unionist Party are in talks today to trash out a deal after Theresa May failed to win a majority for her party last week, losing 13 seats, and winning a total of 318 - eight short of the figure needed to form her own government.

This would allow her to get the Queen’s speech through the Commons. The speech could be delayed from the planned date of Monday 19 June if the talks today are not successful.

First secretary of state Damian Green has told the Press Association: “Until we have [a deal] we can't agree the final details of the Queen's Speech."

Scottish Conservative leader and Ruth Davidson - who wanted to remain in the EU - met with the prime minister at 10 Downing Street and said she had a “useful and positive discussion” over Brexit.

Davidson has expressed a wish to see the UK push for a soft Brexit, which prioritised jobs and the economy.

Labour said the government was "in chaos". Media reports have suggested leader Jeremy Corbyn aims to try and block the Queen’s Speech and force another general election.

SNP leader, Nicola Sturgeon, has also suggested that there should be a “short pause” in Brexit talks to allow a four-nation consensus to be built.

A spokesman for the prime minister said: "We gave a commitment right at the very outset of this process to consult with the devolved administrations and that remains the case."

"There would be no change" to the government's plans, he added. 

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