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The S&P was the only large firm to receive an AAA UK credit award. In the meantime, it has reduced its credit assessment by two levels to AA. Moody's set the British credit ratings on Friday to look downgraded. Downgrading the credit ratings can have an impact on how much it will cost government to raise funds in global finance marketplaces.
Theoretically, a high credit standing means a lower interest payment (and the other way round). Since other things are the same, a downward revaluation can lead to higher cost of borrowings. This cost has fallen since the downgrading incident - the referenda. Risks associated with UK sovereign or bond debts may be somewhat higher than before in a way, but they are still seen as a safer bet in comparison to other asset classes.
At a time when an investor is more likely to be hesitant to keep high-risk investments, they buy more secure ones, even sovereign ones, and this tends to result in a lower interest charge that the state will have to foot the next time it enters the markets to take out loans. Then there is the greater possibility that the Bank of England will lower its own interest because it is concerned about the Brexit effect on the economy.
This tends to result in the cost of public debt moving in the same vein. In the near future, however, we expect an immediate weakening of British economic activity. However, it also cautioned against the fact that medium-term economic expansion is likely to be lower "due to less favorable conditions for EU export, lower migration and a decline in FDI".
The S&P also cautioned that it expects British economy to be adversely affected by the result of the poll. She said there was a danger of a "constitutional crisis" if the result of the plebiscite led to a second plebiscite on Scotland's sovereignty over the UK. "It is our belief that the profound division within both the governing Conservative Party and within societies as a whole on the issue of Europe cannot quickly cure and hinder the governance's instability and policy-making on economics and other issues," she said.
The S&P also issued a warning of uncertainties on a number of crucial questions as Britain's withdrawal from the EU would undermine investors' trust and "jeopardise" important outside investments.