The only major ratings agency to still give Britain a top-notch credit rating said the country risked a downgrade due to Prime Minister David Cameron’s decision to hold a referendum on leaving the European Union.
Standard & Poor’s lowered the outlook for Britain’s triple-A rating to negative from stable on Friday, saying the EU vote “represents a risk to growth prospects for the UK’s financial services and export sectors, as well as the wider economy”.
Widespread dissatisfaction with the EU within Cameron’s Conservative Party, and among many voters, prompted him to promise to re-negotiate Britain’s membership of the bloc and hold a referendum on the revised terms by the end of 2017.
Opinion polls suggest around a third of Britons want to leave the 28-member bloc, which Britain joined in 1972.
S&P said that as well as hurting Britain’s economy, leaving the EU would damage Britain’s ability to finance its large stock of public debt and its current account deficit. The latter ballooned to a record 5.5 percent of gross domestic product in 2014, largely due to low returns on Britain’s investments elsewhere in the EU.
“The U.K. government’s decision to hold a referendum on EU membership by 2017 indicates that economic policy-making could be at risk of being more exposed to party politics than we had previously anticipated,” S&P added.
Supporters of Britain leaving the EU say it is important for national sovereignty reasons and that the economy would grow faster if the country was free to agree its own trade deals with foreign countries and scrap some EU regulations.
S&P said a negative outlook meant there was at least a one-in-three chance of a downgrade in the next two years.
Maintaining Britain’s triple-A credit rating was a key aim for the Conservatives when they came to power in 2010 in a coalition with the centrist Liberal Democrats.
But a failure to reduce the budget deficit as fast as planned due to slow economic growth led to Moody’s and Fitch Ratings downgrading Britain to one notch below AAA in 2013.