Standard & Poor’s warns country would be downgraded one notch on leaving, which could double if relations with Brussels sour

Britain’s credit rating could be cut by as much as two notches if it leaves the European Union, according to Standard & Poor’s, the only big ratings agency to still give Britain the top ranking.

A vote to quit the EU would be likely to result in a one-notch downgrade, which could be increased to two notches if relations between London and Brussels deteriorated significantly, the agency’s chief sovereign rating officer told Reuters in an interview.



The renewed warning of a downgrade follows S&P’s comments in June that David Cameron’s decision to hold a referendum on EU membership had put Britain at greater risk of losing its triple-A credit score.

Support among Britons for staying within the bloc has fallen since then as an influx of migrants into Europe has pushed many voters towards opting for an exit ahead of a referendum due by the end of 2017.



S&P’s Moritz Kraemer told Reuters that Britain would face a one-notch downgrade if it voted to leave, and possibly double that if relations between Britain and Brussels sour or that vote prompted secession by Scotland.



“Should we conclude that departure from the EU is likely over the medium term, we could lower the rating by potentially more than one notch, depending on the circumstances, such as the expected future relations with the EU,” said Kraemer.

S&P has rated Britain at AAA since 1978, but changed the outlook to negative in June this year when it cited the risk of a Brexit.

A poll earlier this month showed support for a British exit at 39%, the highest level since 2012, up from 27% in June.

Whether Scotland remained part of the UK after Brexit would also be a factor. The Scottish government has said Brexit could trigger another vote on independence following a referendum on that issue last year.

“It is one thing to leave the EU, but if the country gets divvied up further, then that is another layer of complication and problems,” Kraemer said.

The agency has previously highlighted serious risks to the pound and Britain’s ability to attract foreign investment were it to break away from the EU.



It has also warned that global banks could quit London in the event of Brexit with implications for the wider UK economy. It says half of all the foreign direct investment into the financial services sector comes from the EU.

Some banks are already starting to move their European bases to Dublin. US bank Citigroup is transferring its European retail banking headquarters to the Irish capital to reduce its cost base. HSBC, Britain’s biggest bank, is also reviewing whether to keep its global headquarters in the UK and has warned about its concerns about the UK leaving the EU.

S&P is the last of the big three to keep a top triple-A rating on UK government debt. The Fitch credit ratings agency and Moody’s both cut the UK to a notch below AAA in 2013. The “negative” outlook from S&P indicates it sees at least a one-in-three chance that the UK will lose its AAA rating over the next two years.



Moody’s has also warned against rushing the referendum and said earlier this year that a vote to leave could cut the UK’s rating. Moody’s, which rates UK government debt one notch below the top triple-A score, says holding a referendum next year would cut the period of uncertainty but at the same time allow less time to negotiate reforms with Brussels.