LONDON (Reuters) - Britain’s credit rating remains at risk of a further downgrade despite the extended deadline for its departure from the European Union, ratings agencies S&P Global Ratings and Fitch Ratings said on Friday.
“The agreement between the EU and the UK to further extend the process ... to 31 October 2019 reduces but does not eliminate the risk of a ‘no-deal’ Brexit over the next six months,” Fitch said.
British Prime Minister Theresa May secured the extension to the Brexit deadline earlier this month after failing to bridge the divide within her own Conservative Party over the terms of Britain’s departure from the EU.
The delay averted the risk of an immediate no-deal Brexit which would deliver a shock to the world’s fifth-biggest economy but the uncertainty remains, weighing on many companies which have cut back on investment.
S&P said its negative outlook reflected the risk of sustained economic weakness and a hit to government finances if Britain lost access to EU markets, investors took fright or sterling’s status as a reserve currency came under pressure.
Fitch and S&P both have a AA rating on British government debt.
S&P said it could revise its outlook to stable if negotiations with the EU provided more certainty for the economy, and if key sectors retained access to EU markets without penalizing tariffs or significant non-tariff barriers.
However, the ratings agency said it saw no easy end to the Brexit impasse in parliament, and even if Britain avoided a no-deal Brexit, its outlook was sobering.
S&P expected the economy would grow by just 1.1% this year - its slowest pace in a decade - before picking up only slightly over the next three years.
That sluggish growth was likely to constrain the government’s ability to raise public spending, despite promises by Finance Minister Philip Hammond that he would be able to end austerity if Britain secured a Brexit deal.
S&P also said the extension to the deadline for agreeing to Britain’s exit from the EU meant London and Brussels would have even less time to thrash out their future trading relationship, the planned second phase of their negotiations.
“The originally envisaged 21 months was already a rather ambitious timeframe and the considerably shorter 14-month transition period may well prove to be inadequate, in our opinion,” it said.
Writing by William Schomberg; Editing by Richard Chang