The U.K. could suffer another ratings downgrade after a General Election led to a hung parliament, Moritz Kraemer, sovereign chief ratings officer at S&P Global, said on Friday.
The U.K. lost its triple A rating after the country voted to leave the European Union in June of last year. S&P said at the time that it was worried the decision would lead to a deterioration of the U.K.’s economic performance and institutional framework.
Kraemer said on Friday that the latest election outcome proves the rating update was correct and further ones could be on the way.
“We have the outlook on the ratings still on negative indicating that further downgrade or downgrades could be in the wings going forward,” he said.
“This depends pretty much on the further outcome of the Brexit negotiations and the reality that the U.K. will face outside the EU, which is still uncertain,” Kraemer added.
Brexit talks, which were due to begin in a couple of weeks, are set to be delayed until the U.K. has a new government in place. The associated uncertainty could hurt the country’s economy by further derailing investment decisions.
Kramer noted that this was the second unnecessary referendum/election in the U.K. “This is quite a track record,” he said.
The upcoming decisions of U.K. lawmakers will be closely watched. Kathrin Muehlbronner, a Moody’s senior vice president and lead U.K. sovereign analyst, said via email: “Moody’s is monitoring the U.K.’s process of forming a new government and will assess the credit implications in due course.”
“As previously stated, the future path of the U.K. sovereign rating will be largely driven by two factors: first, the outcome of the U.K.’s negotiations on leaving the European Union and the implications this has for the country’s growth outlook; Second, fiscal developments, given the country’s fiscal deficit and rising public debt,” she added.
The outcome of the election also seemed to indicate that voters are tired of austerity policies.
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