It’s painfully obvious that the world is radically rethinking its opinion of the United Kingdom in the wake of its vote to leave the European Union.
Credit rating firm Standard & Poor’s just added to the evidence, stripping the UK of its AAA credit rating in light of the referendum result. S&P said a Brexit “will weaken the predictability, stability, and effectiveness of policymaking in the UK and affect its economy, GDP growth, and fiscal and external balances.” It bypassed the option of assigning a lesser AA+ rating, instead dropping the country two notches to AA.
The downgrade destroys the last plausible claim that the UK has to being one of the world’s safest places for investors to park their cash. S&P is actually tardy to the party when it comes to booting Britain from the club of AAA-rated countries. Fellow credit ratings firms Fitch and Moody’s already rated the UK at AA+ and Aa1, on their respective scales. Moody’s changed the outlook on its Aa1 rating to negative from stable, after the vote, suggesting the potential for further downgrade. (Update: Fitch just cut its rating on the UK as well, from AA+ to AA.)
Now, it’s true that the referendum wasn’t binding. Technically speaking, the UK must invoke article 50 of the Lisbon Treaty of 2009, which lays out the process for exiting the EU, to formally start the divorce proceedings. And nobody knows when that will happen. The Europeans seem to want to get right to it, to minimize the period of uncertainty. The British seem to want to take their time as they plan for what comes next.
Either way, the plain fact is that the uncertainty raised by the vote and the process of exiting the union will have very costly effects for both Britain and Europe, and the world economy as a whole. Just look at financial markets, where some $2 trillion in global market value has vaporized since the results of the referendum rolled in last week.