What do the ratings cuts mean?

The UK has lost its top AAA credit rating from ratings agency S&P following the country's Brexit vote; rival agency Fitch also lowered the rate from AA+ to AA. Rathbones' Bryn Jones considers what the ratings cuts mean

What do the ratings cuts mean?

Following from the recent downgrades to UK debt, I believe more cuts are in the pipeline for UK sovereign debt.

I suspect that supranationals, which rely on capitalisation from the UK, are next in the firing line to lose their triple AAA status. We are already seeing pressure on EIB bonds.

There are some suggestions about the Bank of England introducing a corporate bond buying programme, which in my view, should include financials, as corporate bonds are holding up well by comparison.

Interest rates may well be cut in the UK, but I don’t see them lapsing into negative territory.

While in the past downgrades by agencies have been seen as largely retrospective and immaterial, these downgrades are likely to increase risk and long-term funding costs.

Enter your e-mail address to receive updates straight to your inbox

Sign up to Investment Insights direct to your Inbox...

About Author