In the aftermath of the UK’s decision to head for the exit of the EU (and, as they say, it ain’t over until the fat lady sings…) external agencies have been assessing what that decision means as regards the creditworthiness of the nation. A nation’s credit rating is an index of how safe investor’s money is when purchasing that nation’s treasury notes (bonds); the higher the rating, the safer the money and the smaller the interest that the nation must pay on its bonds to attract investors.
National bonds were first introduced to finance wars and major infrastructure projects, but governments such as the UK increasingly use them to plug the gap between what a nation earns and spends (its deficit). A nation cannot run a negative trade balance, so the shortfall is paid for by borrowing and the sum of such debts is the national debt; in the UK’s case a whopping £1.6 trillion, roughly 82% of the country’s GDP. Interest is paid on this debt and borrowing to cover the deficit, so the credit rating is relevant.
Prior to the national decision to self-harm, the nation enjoyed the highest AAA credit rating from ratings agency Standard and Poor’s, (S&P), but they have reacted to the decision by dropping it two levels to AA. They note that the referendum could lead to “a deterioration of the UK's economic performance, including its large financial services sector and weaken the predictability, stability and effectiveness of policymaking in the UK.
Another leading agency Fitch downgraded their rating from AA+ to AA on fears of an “abrupt slowdown” in UK growth in the near future The last of the big three agencies, Moody’s also revised its outlook for the UK rating to “negative” meaning that a downgrade is likely within two years (I wonder if Leave still thinks this is all just scaremongering?).
The UK is a member of the EU and continues to be until the two year notice period following the invoking of Article 50 has elapsed. Only the UK can chose to leave the EU: it can’t be ejected by 27 other members however irate they become. This also means that the UK could step back from the edge, of course.