Top U.K. Rating At Risk

Standard & Poor’s has disclosed that the top credit rating of Britain is at risk because of the planned European Union referendum of Prime Minister David Cameron.

In a statement, the credit ratings agency lowered the outlook on the AAA rating of the country to “negative” from “stable.” This change in rating means that there is a one-in-three chance of a possible downgrade in the following two years. In its analysis, S&P said that Cameron’s pledge for a vote represents a risk to growth prospects of the UK economy and exports and financial services of the country.

S&P said Britain’s decision to propose a referendum was at least partially driven by intention of the UK government to include the influence of the euro-skeptic U.K. Independence Party. The credit ratings agency also commented that it believe the referendum is aimed at strengthening unity inside Cameron’s party that has a strong euro-skeptic wing. It was also remarked by the ratings company that the referendum suggests that economic policy making may be at risk of being more exposed to party politics than anticipated by S&P previously.

A few days back, Moody’s Investors Service issued a warning that the planned European Union referendum is a threat to the rating of Britain. Moody’s, which rates the U.K. at AA1 (its second-highest grade), said an early referendum could hurt the UK rating as it increases the risk that the British government would not clinch the changes it wants that could possibly negatively influence willingness of the Cameron government to support remaining in the European Union.

The S&P analysis was played down by the U.K. Treasury in a statement in which it remarked that the present scenario represents a time of “heightened risk” and the UK government should push on with its economic program.

After S&P’s announcement, the British pound pared its advance against the dollar. It was up 0.3 percent at $1.5559 on June 12 (as of 6:22 p.m. London time).

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