Brexit: A six-point help guide to why the UK's unresolved EU exit plans are weighing on its credit score

The EU's agreement of a short extension of Article 50 reduces the likelihood of a no-deal 'Brexident' next week. Even when Scope has expected the united kingdom to avoid a no-deal exit, the effects of prolonged uncertainty for the UK's credit ratings are increasing.

The EU agreed Thursday to some short Article 50 extension until 22 May, less than britain's request extra time to 30 June and depending on the Brexit deal being qualified in the UK Parliament next week. If the Brexit deal is not approved in the UK next week, the EU agreed to an extension only to 12 April and could instead offer a further extension afterwards. These options do little to solve the uncertainty clouding the UK's political and economic future.

Here is Scope analyst Dennis Shen's six-point explanation regarding why investors shouldn't underestimate the entire domestic economic impact of Brexit, notwithstanding the credit strengths of the UK (rated AA/Negative):

• “A short Article 50 extension phase resulting in an eventual Brexit with May's deal in hand might have the advantage of ensuring an orderly exit, but uncertainty and it is associated adverse impacts around the UK economy would continue throughout the transition period.”
• “Any lengthier Article 50 extension, especially one past 1 July, is more difficult politically and legally and would hold uncertain rating implications for the UK especially, as this could involve a May resignation and Tory leadership contest, early elections and/or a second referendum that leads to some more significant rethink around the UK's Brexit strategy.”
• “The UK's credit score cannot withstand Brexit-related uncertainty indefinitely. Scope estimates the economic cost of Brexit has already been more than 1% of GDP because the 2021 referendum – and it is continuing to rise.”
• “The UK's ratings could be at risk of a downgrade over time even if the country avoids a no-deal exit in the EU if, for example, the expense of economic uncertainty grow due to questions around exactly what kind of trade agreement the UK can strike.”
• “Prolonged uncertainty over the outcome of exit negotiations through a very short Article 50 extension could continue to hobble coherent policy making in London and additional impair britain's economic performance.”
• “At the same time frame, we don't wish to underplay the UK's significant credit strengths – reflected within the country's AA ratings: The economy has proved more resilient than many expected at about the time from the referendum, recent budgetary developments have been much better than expected, and the UK continues to take advantage of sterling's global reserve currency status.”