A “hard Brexit” which severs ties with the EU’s single market is the most likely outcome from the UK’s exit talks, S&P Global Ratings has said.
Warning that the referendum result has “laid bare schisms in British society”, the rating agency said the UK would take the biggest economic hit from its EU exit while spillovers to the world economy would be “limited”.
S&P stripped the UK of its triple AAA status and place its sovereign rating on a negative outlook in the wake of the vote – an “unprecedented step” which reflected the economic and political magnitude of the decision, according to chief ratings officer Moritz Kraemer.
Mr Kraemer said the British government had not yet grasped that Brussels and its 27 member states would not compromise on the “indivisibility” of the four principles ruling the single market – freedom of movement, labour, capital and goods.
Prime Minister Theresa May has drawn her red lines on controlling immigration policy, a stance which means a “hard” exit – where Britain does not retain access to the internal market – was the most likely outcome from negotiations, said Mr Kraemer.
Even if Westminster were to acknowledge the EU position, it is hard to fathom how a rather hard Brexit can be avoided unless both sides become much more flexible than they appear today.
Nothing today suggests that a common quest for compromise will overcome the gulf that now looks as wide as the English Channel.
A recent decision from the High Court that the UK parliament must be given a vote on triggering the Article 50 exit clause had also weakened Prime Minister Theresa May’s bargaining position, said the report from S&P.
“Parliament may choose to attach conditions to the negotiation process or results, which can weaken the ability of the British negotiators to compromise”.
The triggering of Article 50 will start a two-year clock on exit talks – a time frame which can only be extended with the approval of the 27 member state governments. S&P highlight that it took Greenland – the only country to have ever left the EU – three years to complete its divorce talks, while an EU trade deal with Canada has taken seven years to complete.
The report warns:
The risk of accidents is high and time very short. We are concerned that once Article 50 is triggered and the negotiation process is underway, the fault lines between the EU and the U.K. become more easily observable (and maybe even the conflicts inside the U.K. government). In such an environment, investors and businesses, but also consumers may become more nervous and tighten their purses, leading to a weaker economic outcome. in turn this raises the risks to territorial integrity and another Scottish referendum
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