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Britain loses Triple-A credit rating after Brexit vote – business live Britain downgraded by S&P and Fitch as Brexit crisis deepens - live updates
(35 minutes later)
9.34pm BST
21:34
From New York, my colleague Sam Thielman reports on another bad day on Wall Street:
US stock markets were rocked again on Monday by the aftershocks of the UK’s referendum decision to quit the European Union.
Since the results became known on Thursday, the major US markets have suffered their biggest two-day fall in 10 months. Monday’s dips came as the pound collapsed to its lowest point since 1985 and the UK lost its triple-A credit rating.
The Dow Jones Industrial Average finished the day down 260 points, or 1.5%, the S&P 500 dropped 1.8%, and the technology-heavy Nasdaq ended the day 2.5% down as the sell-off sparked by the Brexit vote in the UK continued to reverberate through the American market....
Related: US stock markets sink again following Brexit vote
9.31pm BST
21:31
This is worth repeating...
Fitch downgrades the UK. I note they list "lower immigration" as a reason to expect weaker economic growth #Brexit pic.twitter.com/TXT0Fq5RDP
9.21pm BST
21:21
Why Fitch downgraded the UK
Fitch says it has downgraded Britain’s credit rating from AA+ to AA because the decision to leave the EU will have “a negative impact on the UK economy, public finances and political continuity.”
The rating agency warns that Britain faces an “abrupt slowdown in short-term GDP growth”, as businesses defer investment while tehy wonder how the Brexit vote will affect them.
The agency says:
Fitch has revised down its forecast for real GDP growth to 1.6% in 2016 (from 1.9%), 0.9% in 2017 and 0.9% in 2018 (both from 2.0% respectively), leaving the level of real GDP a cumulative 2.3% lower in 2018 than in its prior ‘Remain’ base case.
Fitch also fears that medium-term growth will also likely be weaker, as Britain will find it harder to export to the EU. Lower immigration, and a fall in investment from overseas, will also hurt the economy, as could a weaker pound.
Fitch adds that Britain’s future trade relationship with the EU is crucial:
Statements by UK and EU leaders will provide some guidance on the UK government’s policy objectives, the likelihood of achieving them and the timeframe for negotiation. However, Prime Minister David Cameron has indicated that negotiations with the EU will not begin in earnest until 4Q16, and the final position may well not be known for several years.
And Fitch also fears that Britain’s budget deficit will be higher than previously expected, as weaker economic growth means lower tax revenues.
This implies that the general government debt ratio will continue rising over the forecast horizon, reaching 91% of GDP in 2017, compared with the debt ratio stabilising previously.
And then there’s the political crisis raging in Westminster; Fitch says this is also bad for Britain’s credit worthiness:
The outcome of the referendum has precipitated political upheaval, including the announced resignation of the Prime Minister, contributing to heightened uncertainty over government economic policies and diminished scope for policy implementation at the current conjuncture.
And there’s more.....
Furthermore, the fact that a majority of voters in Scotland opted for ‘Remain’ makes a second referendum on Scottish independence more probable in the short to medium term. The Scottish First Minister Nicola Sturgeon has indicated that a second referendum on Scottish independence is “highly likely”. A vote for independence would be negative for the UK’s rating, as it would lead to a rise in the ratio of government debt/GDP, increase the size of the UK’s external balance sheet and potentially generate uncertainty in the banking system, for example in the event of uncertainty over Scotland’s currency arrangement.
There’s more here (if you can face it):
Fitch Downgrades the United Kingdom to 'AA'; Outlook Negative https://t.co/mJBLc8agMj pic.twitter.com/1B6J0hxhPs
9.08pm BST
21:08
FITCH DOWNGRADES UK
Britain’s credit rating has just suffered a double blow, with the news that Fitch has also downgraded it to AA.
Now Fitch has downgraded the UK to AA too. Also negative outlook. Also inevitable.
More details to follow....
9.06pm BST
21:06
Wall Street suffers biggest two-day fall in 10 months
Take a deep breath, folks. Another day of market turmoil is over.
Wall Street has closed, with the Dow Jones industrial average shedding 260 points, or 1.5%.
Credit card firm American Express was the biggest faller on the Dow, down around 3.9%.
Reuters reports that Wall Street has suffered its biggest two-day fall in 10 months, since the worries about China’s slowing economy.
Updated
at 9.06pm BST
8.53pm BST8.53pm BST
20:5320:53
Britain’s Brexit crisis is going to dominate tomorrow’s papers.Britain’s Brexit crisis is going to dominate tomorrow’s papers.
The Financial Times’ front page has just landed, focusing on the heavy losses on the stock markets and the pound’s drop to a 31-year low.The Financial Times’ front page has just landed, focusing on the heavy losses on the stock markets and the pound’s drop to a 31-year low.
Tuesday's FT:Sterling and bank stocks hammered as Cameron seeks to calm markets#Tomorrowspaperstoday #bbcpapers pic.twitter.com/kTDrhyiYPiTuesday's FT:Sterling and bank stocks hammered as Cameron seeks to calm markets#Tomorrowspaperstoday #bbcpapers pic.twitter.com/kTDrhyiYPi
8.37pm BST8.37pm BST
20:3720:37
The FT’s economics editor, Chris Giles, says S&P’s downgrade is a cause for serious concern:The FT’s economics editor, Chris Giles, says S&P’s downgrade is a cause for serious concern:
S&P no longer see UK institutions as a strength. Cuts credit rating TWO notches. Worse than financial crisisS&P no longer see UK institutions as a strength. Cuts credit rating TWO notches. Worse than financial crisis
8.30pm BST8.30pm BST
20:3020:30
Shares are still falling in New York, with 30 minutes trading today.Shares are still falling in New York, with 30 minutes trading today.
BREAKING: U.S. markets tumble to new session lows, Dow now down 335+ points, S&P down 2.2% https://t.co/u7XNvdBsax pic.twitter.com/vMeOUsbPLkBREAKING: U.S. markets tumble to new session lows, Dow now down 335+ points, S&P down 2.2% https://t.co/u7XNvdBsax pic.twitter.com/vMeOUsbPLk
Financial stocks are among the big fallers, as in Europe today.Financial stocks are among the big fallers, as in Europe today.
8.25pm BST8.25pm BST
20:2520:25
It’s been a really dramatic day in the financial world; here’s our updated news story:It’s been a really dramatic day in the financial world; here’s our updated news story:
Related: UK loses triple-A credit rating after Brexit voteRelated: UK loses triple-A credit rating after Brexit vote
8.12pm BST8.12pm BST
20:1220:12
The scale of S&P’s downgrade tonight is unprecedented, says Reuters’ Jamie McGeever, showing the full impact of Brexit.The scale of S&P’s downgrade tonight is unprecedented, says Reuters’ Jamie McGeever, showing the full impact of Brexit.
Britain's downgrade by S&P today was historic - the first time the ratings agency has ever cut a AAA sovereign rating by two notches.Britain's downgrade by S&P today was historic - the first time the ratings agency has ever cut a AAA sovereign rating by two notches.
8.04pm BST8.04pm BST
20:0420:04
Back in 2012, the LabourList website gathered together George Osborne’s various warnings about the need to keep the AAA rating.Back in 2012, the LabourList website gathered together George Osborne’s various warnings about the need to keep the AAA rating.
For example, in 2009, he declared:For example, in 2009, he declared:
“I have argued it with my opponents in difficult economic times, when I warned them last autumn that the cupboard was bare and the discretionary borrowing had to stop – and now Britain faces the humiliating possibility of losing its international credit rating.“I have argued it with my opponents in difficult economic times, when I warned them last autumn that the cupboard was bare and the discretionary borrowing had to stop – and now Britain faces the humiliating possibility of losing its international credit rating.
Here’s the full list: Some things George Osborne has said about the AAA credit ratingHere’s the full list: Some things George Osborne has said about the AAA credit rating
All good clean fun. But in the chancellor’s defense, he did warn the public not to vote for Brexit....All good clean fun. But in the chancellor’s defense, he did warn the public not to vote for Brexit....
This must be about the first time in history a finance minister might actually think himself vindicated by a credit rating downgradeThis must be about the first time in history a finance minister might actually think himself vindicated by a credit rating downgrade
7.52pm BST7.52pm BST
19:5219:52
S&P held back the downgrade until the London stock market had closed, so the City hasn’t had chance to react yet.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.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.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 BST
19:13
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.
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 already
Updated
at 7.15pm BST
7.11pm BST
19:11
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.
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.
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 days
7.07pm BST
19:07
S&P: UK faces constitutional issues
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.”
S&P also cites "risks to the constitutional and economic integrity of the UK if there is another referendum on Scottish independence"
7.05pm BST
19:05
S&P really hasn’t held back -- this is a TWO-NOTCH downgrade, from AAA to AA, completely bypassing the AA+ rating.
6.53pm BST
18:53
Britain loses AAA 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.
UK'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.
It also believes that growth will be ‘significantly lower’ between 2016 and 2019, with growth averaging just 1.1% per year.
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.”
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......
Updated
at 6.54pm BST
6.46pm BST
18:46
Economist: 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.
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.
“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).
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/uTvyjU09ND
6.25pm BST
18:25
The FTSE 250 index, made up of 250 UK firms not big enough for the Footsie 100, has been through a torrid two days:
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/v2FsB9Nj5N
The ‘250 is seen as a better gauge of the domestic UK economy. So this is Not Good....
Updated
at 6.35pm BST