S&P Relegates European Union Credit Rating to AA

Friday, 1st July: Investors continued to react to Mark Carney’s late afternoon speech from yesterday as both the FTSE 100 and 250 started the month with gains. It is the 4th straight day the indices have risen. The FTSE 250, which suffered severe losses at the start of the week, and is a better gauge of the UK economy, moved up by 1.19% with Crest Nicholson leading the pack +10.96%.

Following the Brexit vote and the uncertainty that has come with it, UK Chancellor George Osborne has reversed his aims to reach a budget surplus by 2020, claiming the UK had to be “realistic about achieving a surplus by the end of the decade”. It is the third of his self-imposed fiscal rules that he has had to go back on after already admitting defeat to cutting debt as a share of GDP this year, whilst last year he backed out of his cap on welfare spending.

On Monday the ratings agency Standard and Poor’s (S&P) cut the credit rating on the UK from AAA to AA (dropping two notches as it skipped past an AA+ rating). The reasoning? You guessed it. Uncertainty following the Brexit, stating the result would “weaken the predictability, stability, and effectiveness of policymaking in the UK”. Well today the European Union had its credit rating cut (although it never had an AAA rating), falling from AA+ to AA. It seems S&P’s original rating had been based on a 28 member state, and with the UK voting to leave it “lessens the supranational’s fiscal flexibility, while reflecting weakening political cohesion”.

The UK Manufacturing PMI data was released today, rising more than expected with a reading of 52.1 in June vs 50.4 in May. It is the strongest reading since January and comfotably above forecasts of 50.3. However it isn’t much to get excited about as it covers the period leading up to the referendum more so.

At the close the FTSE 100, CAC and DAX were all in the green: +1.13%, +0.86% and 0.99% respectively. Over the pond the Dow Jones and S&P 500 are both currently ahead for their 4th consecutive day. GBP/USD is -0.36% at $1.33 and GBP/EUR is -0.73% at €1.19.