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Britain loses Triple-A credit rating after Brexit vote -- business live Britain loses Triple-A credit rating after Brexit vote – business live
(35 minutes later)
7.52pm BST
19:52
S&P held back the downgrade until the London stock market had closed, so the City hasn’t had chance to react yet.
But over in New York, shares are falling deeper into the red on Wall Street.
The Dow Jones industrial average has now shed 306 points, a fall of 1.75% today, on top of the 611 points shed during Friday’s tumble.
7.50pm BST
19:50
Former Liberal Democrat leader Paddy Ashdown fears that Britain will eventually have to pay more to borrow, due to S&P’s downgrade:
UK credit rating down. Cost of UK debt up. 0.5% on £470 bn debt = £22 Bn. 2X our EU contribution to international money men. Taking control?
A lower credit rating would only affect the cost of new debt, of course, not the existing borrowing.
Updated
at 7.51pm BST
7.24pm BST
19:24
S&P downgrades Britain - the key points
Britain lost her top-notch credit rating almost exactly 12 hours after chancellor George Osborne claimed that Britain’s economy was in decent shape to face the uncertainty caused by the Brexit vote.
Here are the key reasons why S&P took this historic move:
7.24pm BST
19:24
Corporate governance expert Lucy Marcus points out that some UK companies could now face higher borrowing costs, following S&P’s move.
This will have serious knock on effects for all UK based companies. https://t.co/lvOuo7zDQc
That’s because a company can’t have a higher credit rating than its own country [because sovereign states, and their central banks, are the lenders of last resort, in times of crisis]
7.13pm BST7.13pm BST
19:1319:13
S&P’s two-notch downgrade comes hot on the heels of Moody’s, which downgraded the UK’s outlook to negative on Friday night.S&P’s two-notch downgrade comes hot on the heels of Moody’s, which downgraded the UK’s outlook to negative on Friday night.
Reuters’ Luke Baker points out that the agencies are moving with unusual speed:Reuters’ Luke Baker points out that the agencies are moving with unusual speed:
During eurozone debt crisis, S&P, Moody's and Fitch normally waited until Friday to issue downgrades. Monday and S&P moved on UK alreadyDuring eurozone debt crisis, S&P, Moody's and Fitch normally waited until Friday to issue downgrades. Monday and S&P moved on UK already
UpdatedUpdated
at 7.15pm BSTat 7.15pm BST
7.11pm BST7.11pm BST
19:1119:11
Losing the Triple-A credit rating might not have any immediate impact on Britain’s ability to borrow.Losing the Triple-A credit rating might not have any immediate impact on Britain’s ability to borrow.
That’s because worried investors have been keen to buy UK government bonds since the Brexit crisis erupted, driving borrowing costs down to record lows.That’s because worried investors have been keen to buy UK government bonds since the Brexit crisis erupted, driving borrowing costs down to record lows.
But it’s a humiliating moment for the government, which put ‘repairing the public finances’ at the heart of its strategy (not always successfully).But it’s a humiliating moment for the government, which put ‘repairing the public finances’ at the heart of its strategy (not always successfully).
Moody’s and Fitch both downgraded the UK in 2013. S&P maintained the AAA through the eurozone debt crisis, but has now lost the faith.Moody’s and Fitch both downgraded the UK in 2013. S&P maintained the AAA through the eurozone debt crisis, but has now lost the faith.
This government was totally obsessed with UK retaining its AAA rating after 2008 crash. So it holds EU vote & we lose it in two working daysThis government was totally obsessed with UK retaining its AAA rating after 2008 crash. So it holds EU vote & we lose it in two working days
7.07pm BST7.07pm BST
19:0719:07
S&P: UK faces constitutional issuesS&P: UK faces constitutional issues
S&P is also concerned that the future of the United Kingdom itself is at risk.S&P is also concerned that the future of the United Kingdom itself is at risk.
It says that the majority votes to remain within the EU from Scotland and Northern Ireland create “wider constitutional issues for the country as a whole.”It says that the majority votes to remain within the EU from Scotland and Northern Ireland create “wider constitutional issues for the country as a whole.”
S&P also cites "risks to the constitutional and economic integrity of the UK if there is another referendum on Scottish independence"S&P also cites "risks to the constitutional and economic integrity of the UK if there is another referendum on Scottish independence"
7.05pm BST7.05pm BST
19:0519:05
S&P really hasn’t held back -- this is a TWO-NOTCH downgrade, from AAA to AA, completely bypassing the AA+ rating.S&P really hasn’t held back -- this is a TWO-NOTCH downgrade, from AAA to AA, completely bypassing the AA+ rating.
6.53pm BST6.53pm BST
18:5318:53
Britain loses AAA credit ratingBritain loses AAA credit rating
NEWSFLASH: Britain has just lost its last triple-A credit rating.NEWSFLASH: Britain has just lost its last triple-A credit rating.
Standard & Poor’s has downgraded the UK to AA, with a negative outlook, following the EU referendum decision.Standard & Poor’s has downgraded the UK to AA, with a negative outlook, following the EU referendum decision.
UK's last AAA rating gone: S&P cuts UK to AA, negative outlookUK's last AAA rating gone: S&P cuts UK to AA, negative outlook
S&P blames the Brexit vote, saying it has weakened the UK’s “predictability, stability and effectiveness” of policymaking in the UK.S&P blames the Brexit vote, saying it has weakened the UK’s “predictability, stability and effectiveness” of policymaking in the UK.
It also believes that growth will be ‘significantly lower’ between 2016 and 2019, with growth averaging just 1.1% per year.It also believes that growth will be ‘significantly lower’ between 2016 and 2019, with growth averaging just 1.1% per year.
S&P says:S&P says:
“In our opinion, this outcome is a seminal event, and will lead to a less predictable, stable, and effective policy framework in the U.K. We have reassessed our view of the U.K.’s institutional assessment and now no longer consider it a strength in our assessment of the rating.”“In our opinion, this outcome is a seminal event, and will lead to a less predictable, stable, and effective policy framework in the U.K. We have reassessed our view of the U.K.’s institutional assessment and now no longer consider it a strength in our assessment of the rating.”
S&P also warns that foreign firms are less likely to invest in the UK, while sterling could also lose its role as a global reserve currency.S&P also warns that foreign firms are less likely to invest in the UK, while sterling could also lose its role as a global reserve currency.
Reaction to follow......Reaction to follow......
UpdatedUpdated
at 6.54pm BSTat 6.54pm BST
6.46pm BST6.46pm BST
18:4618:46
Economist: Worst crisis for UK economy since WW2Economist: Worst crisis for UK economy since WW2
George Osborne’s claim that Britain’s economy is well-positioned to ride out the crisis has been roundly dismissed by a former chief economist of the Organisation for Economic Cooperation and Development.George Osborne’s claim that Britain’s economy is well-positioned to ride out the crisis has been roundly dismissed by a former chief economist of the Organisation for Economic Cooperation and Development.
The FT has the details:The FT has the details:
John Llewellyn, founder of Llewellyn consulting and a former chief economist of the Organisation for Economic Cooperation and Development, said the UK was heading into recession at a time when its economy was not fixed and the BoE appeared to be the only functioning authority.John Llewellyn, founder of Llewellyn consulting and a former chief economist of the Organisation for Economic Cooperation and Development, said the UK was heading into recession at a time when its economy was not fixed and the BoE appeared to be the only functioning authority.
“We are more worried — for the UK, though importantly not for the world — than we were in 2008 or any other post-World War Two crisis,” he said. “The scale of all this will start to unfold in coming weeks.”“We are more worried — for the UK, though importantly not for the world — than we were in 2008 or any other post-World War Two crisis,” he said. “The scale of all this will start to unfold in coming weeks.”
Llewellyn is also worried about Britain’s ‘twin deficit’ problem (the annual borrowing requirement, and the gap between imports and exports).Llewellyn is also worried about Britain’s ‘twin deficit’ problem (the annual borrowing requirement, and the gap between imports and exports).
Click on this tweet for more....Click on this tweet for more....
TIN HAT TIME John Llewellyn, former OECD chief economist, and one of the least alarmist people I know pic.twitter.com/uTvyjU09NDTIN HAT TIME John Llewellyn, former OECD chief economist, and one of the least alarmist people I know pic.twitter.com/uTvyjU09ND
6.25pm BST6.25pm BST
18:2518:25
The FTSE 250 index, made up of 250 UK firms not big enough for the Footsie 100, has been through a torrid two days:The FTSE 250 index, made up of 250 UK firms not big enough for the Footsie 100, has been through a torrid two days:
FTSE 250 closes down 7%. That's 13.7% in two trading sessions. 2nd largest two-day fall since the hurricane in 1987. pic.twitter.com/v2FsB9Nj5NFTSE 250 closes down 7%. That's 13.7% in two trading sessions. 2nd largest two-day fall since the hurricane in 1987. pic.twitter.com/v2FsB9Nj5N
The ‘250 is seen as a better gauge of the domestic UK economy. So this is Not Good....The ‘250 is seen as a better gauge of the domestic UK economy. So this is Not Good....
UpdatedUpdated
at 6.35pm BSTat 6.35pm BST
6.22pm BST
18:22
Speaking of Hargreaves Lansdown.....
Billionaire Peter Hargreaves gave Leave £3m because exit EU 'better for UK'. Lost £410m since Friday #consequenceshttps://t.co/kA37dVsRMJ
6.22pm BST
18:22
Banks and house builders have suffered particularly badly from the post-referendum selloff.
Financial services group Hargreaves Lansdown says:
Around £40 billion has been wiped off the value of banking stocks in the last two days, with over £8 billion wiped off house builders, representing around 18% and 37% of their total market capitalisation respectively.
Barclays has lost 32 per cent of its market value over the last two days. Taylor Wimpey has lost 40 per cent.
Updated
at 6.22pm BST
5.54pm BST
17:54
European markets end sharply lower again
The effect of calming words from UK chancellor George Osborne early on Monday morning did not last very long, with investors bailing out of shares once again in the wake of the shock vote for the UK to leave the European Union, and the subsequent political chaos at the top of the country’s two main parties.
The FTSE 100 has now lost nearly £100bn in the two trading days since the result of the vote, falling another 2.55% on Monday, while the more domestically focused FTSE 250 slumped nearly 7% during the day and hit its lowest level since 2014. The 250 is down 14% in two trading days.
The pound has also been pummelled, falling to new 31 year lows against the dollar and dropping more than 2.4% against the euro.
Airline shares fell after a warning from easyJet, banks were sliding across Europe on worries about the effect on their balance sheets of the possible economic fallout from Brexit, with the European banking index down 7.6%, while UK housebuilders were also undermined by the vote.
But with investors seeking havens, gold and silver were in demand, with precious metal miners Randgold Resources and Fresnillo leading the risers in the FTSE 100. Dollar earning UK-listed companies such as AstraZeneca and Diageo also bucked the falling trend.
The yield on UK ten year gilts fell below 1% for the first time, another sign of investors seeking secure homes for their cash.
Joshua Mahony, market analyst at IG, said:
The pound and UK stocks have taken a hammering for a second consecutive trading day today, as investor sentiment continues to wane on the largely unknown consequences of Friday’s Brexit result. As the pound continues to suffer, investors are fast seeking havens, yet with the Swiss (who intervened on Friday) and Japanese (who likely will in July) central banks likely to devalue, the US dollar index has surged to a three month high.
What we really need is some form of decisive action, as financial markets seek reassurance that things will be OK. What we look likely to get is two months of political infighting, followed by another 20 months of uncertainty as the new leader somehow attempts to secure a deal which appeals to the many facets of the leave campaign. This will all take time and in the meanwhile, investors and businesses are left to ponder what the potential impact will be of this monumental decision.
The final scores showed:
On Wall Street the Dow Jones Industrial Average is currently down 273 points or 1.58%.
Updated
at 6.04pm BST
5.36pm BST
17:36
Dominic Rushe
Ryan Sweet, director of real-time economics at Moody’s Analytics, has been talking about the effect of Brexit on the US economy, writes Dominic Rushe:
“The UK’s exit has created a significant amount of uncertainty and has unsettled financial markets. The three major channels are financial markets, confidence and trade. Financial markets pose the most significant and immediate threat to the US economy. US equities are likely going to have a rough few days.”
Moody’s expects the Brexit news to shave 0.1 of a percentage point off US GDP growth over the course of the next year but it shouldn’t have an appreciable impact on jobs or the unemployment rate.
Over the long-term Sweet said a Brexit shouldn’t be significant drag on the US economy.
5.34pm BST
17:34
We knew Friday was a turbulent day in the markets, and here’s some data from Hargreaves Lansdown to back it up.
The investment group said visits to its website on Friday surged to 636,061, up 50% on the previous highest daily record.
It said investors spent the equivalent of 17 and a half year’s normal activity on its website in one day. And the majority of the deal were buys (possibly not looking so good today but hey, long term).
4.45pm BST
16:45
The FTSE 100 has finished 156.49 points or 2.55% lower at 5982.20. However this is only the lowest level since 16 June, given the market bounce ahead of the referendum when everyone believed the Remain camp would win the day.
4.43pm BST
16:43
Here’s a useful little guide to some possible Brexit effects, courtesy of Open Europe:
From our #Brexit report. How will leaving affect different sectors of the UK economy ?services most tricky. pic.twitter.com/2M1DTSB3nY
4.35pm BST
16:35
Another stab at where markets and sterling may go from here, from Morgan Stanley.
In a weekend note (ie before today’s falls) it said:
Our foreign exchange strategists believe that the pound will ultimately fall to ¢1.25-1.30. Our equity strategists believe that European and UK stocks may need to correct a further 7-10% over the next several months. While these adjustments may seem harsh in light of Friday’s moves, we think they’re consistent with the uncertainty this vote has created. ¢1.25-1.30 for the pound would only begin to make the currency look cheap on a trade-weighted basis. A further 7-10% fall in UK and European stocks would simply bring forward multiples down to the long-run average. Both seem reasonable in light of increased uncertainty.
4.08pm BST
16:08
The FTSE 250 may be slumping faster than the top 100 index, but this is not the full picture. Michael Hewson, chief market analyst at CMC Markets UK, says:
The FTSE250 has borne the brunt of the sell-off in the UK market, dropping below its February lows, due to its heavier exposure to the UK economy, having fallen over 2,000 points in the last two days.
In order to give some perspective though over a five year time frame the picture does look somewhat different, with the FTSE100 only up 6% in that period, while the FTSE250 is still up over 30%, well above levels seen in back in 2011 when it was trading around the 10,500 level.
Elsewhere the banks are under pressure, and not just in the UK where Royal Bank of Scotland is currently down 15% and Barclays 17% lower. Hewson again:
Deutsche Bank has once again hit new record lows while Italian banks have also remained under pressure, with Unicredit, Monti Dei Paschi and Popolare all down heavily at new all-time lows, as concerns about the huge amount of non-performing loans prompt new concerns about their solvency.
Reports that the Italian government is weighing up measures that could add up to €40bn into Italian lenders haven’t been enough to support the share prices, probably down to the fact that these banks have non-performing loans in excess of €300bn.
Spanish banks have also slid back despite initially opening higher after the weekend election saw Mariano Rajoy once again fall short of an overall majority, though his party did increase the number of seats from the vote in December.
3.46pm BST
15:46
"Markets are volatile, companies are considering their investments, we know this will be far from plain sailing." @David_Cameron #Brexit