Standard & Poor's (S&P) has listed a number of factors, including the possible threat of the pound losing its reserve currency status, that could lead it to a further downgrade of the UK's sovereign credit rating.

The ratings agency made the announcement on Friday as it kept a negative outlook on its current AA rating.

S&P stripped the country of its coveted top investment grade AAA status three days after the Brexit referendum result.

It cited ongoing uncertainty about the country's future outside the EU for keeping its negative outlook following a new review.

Credit ratings are important as they are seen as a confidence barometer in a country's economy.


By scoring national governments on how credit-worthy they are helps determine the interest rates countries pay to borrow money.

World Trade Organisation softens its tone on Brexit

But it said: "We could lower the rating if we conclude that sterling will lose its status as a reserve currency or if public finances or GDP per capita weaken markedly beyond our current expectations.

"In addition, we could lower our ratings if significant constitutional issues arise and create further financial and

economic uncertainty."

Those risks, it said, included the possibility of a second referendum on Scottish independence that has been signalled by First Minister Nicola Sturgeon - a fierce opponent of Brexit.

Is a new spending squeeze looming?

Its review continued: "In our opinion, Brexit presents a significant risk to the UK's track record of strong economic performance, and to its large financial sector in particular."

To lose its reserve currency status, sterling bonds would have to be sold off heavily by central banks around the world amid a collapse in confidence over the UK economy.

The most recent GDP figures for the UK economy reported growth of 0.5% in the third quarter covering the three months after the Brexit vote.

Chancellor welcomes GDP figures

While economists expect the UK to miss a recession next year, the 18% decline in sterling's value versus the dollar will likely stoke inflation as imported goods become more expensive - risking a spending slowdown without sharper wage increases.

It places pressure on the Chancellor, Philip Hammond, to borrow more to prop-up growth. He is expected to confirm targeted spending increases in his first Autumn Statement next month.

S&P added: "We could revise the outlook to stable if investment and economic growth remain above our expectations, while negotiations with the EU prove amicable and not significantly detrimental to the UK's economy and trade.