BRITAIN

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S&P and Fitch downgrade Britain
WILLIAM TURVILL
@wturvill
STANDARD and Poor’s and Fitch
downgraded the UK’s credit rating
last night after last week’s Brexit vote.
S&P took the UK’s rating down two
notches, from AAA to AA, with a negative
outlook, describing the Brexit
vote as “a seminal event”.
Fitch downgraded the UK from AA+
to AA, with a negative outlook.
Markets predict
BoE rates could
fall below zero
JAKE CORDELL
@JakeCordell
MARKETS are pricing in a 15 per cent
chance of the Bank of England
slashing interest rates below zero as
financial markets continue to wobble
after the UK’s historic vote to leave
the EU last week.
As trading was suspended on
banking shares after another day of
double-digit falls, the market
outlook on the future path of
interest rates headed south.
Markets are now fully pricing in at
least one cut to interest rates – which
have been at their lowest level in the
Bank’s 300-year history of 0.5 per
cent since March 2009 – before the
end of the year.
That is despite all three major
ratings agencies cutting their
outlook on the UK’s gold standard
credit rating.
Analysis by traders Hargreaves
Lansdown showed markets are also
putting the chances of Bank
governor Mark Carney cutting
interest rates into negative territory
at one in six. Carney has previously
been dismissive of the idea of
negative rates, but did warn a sharp
depreciation in the value of sterling
following a vote to leave would
create a difficult decision for the
bank.
A weaker pound could see
inflation jump above the Bank’s two
per cent target fairly quickly, while
financial instability may result in
higher unemployment and weaker
growth.
“The Brexit vote has substantially
moved the dial on interest rate
expectations, with markets now
pricing in a significant chance of
rates going negative in the UK,” said
Laith Khalaf, senior analyst at
Hargreaves Lansdown.
“The Bank may find itself between
a rock and a hard place,” he added.
Meanwhile, Sky News reported that
Moody’s has signalled to a number of
the UK’s largest banks that it plans to
revise down the outlook for their
credit ratings to negative from positive
or stable.
“The UK vote to leave the European
Union in the referendum on 23 June
will have a negative impact on the UK
economy, public finances and political
continuity,” Fitch said.
S&P said: “In our opinion, this outcome
is a seminal event, and will lead
to a less predictable, stable, and effective
policy framework in the UK.
“We have reassessed our view of the
UK’s institutional assessment and
now no longer consider it a strength
in our assessment of the rating.”
S&P also noted that a Remain vote in
the EU referendum in Scotland and
Northern Ireland “creates wider constitutional
issues for the country as a
whole”.
TUESDAY 28 JUNE 2016
BREXIT
NEWS
GOLD STANDARD Precious metals soar
Bond yields hit
record lows as
Brexit bites
05
RETAIL gold
investors are
booking profit
on metal
bought to
hedge against
the Brexit vote
on Thursday.
As investors
raced to safe
havens, the
yellow metal
hit $1,324.55
an ounce, up
0.7 per cent.
JAKE CORDELL
@JakeCordell
BORROWING costs for the UK
government have dropped to their
lowest on record as investors flock
to the safe haven of government
debt amid Brexit uncertainty.
Yields on the benchmark 10-year
Treasury bonds plunged to 0.94 per
cent, down an unprecedented 0.14
percentage points – or 14 basis
points.
It is the first time the amount
payable in interest on 10-year UK
debt has fallen below one per cent,
having already been at their lowest
ever level in the run-up to the
referendum vote.
This means investors will receive
just 94p in interest on every £100 of
long-term government debt they
own.
Lower yields typically indicate
investors have more faith in the
ability of the issuer of that debt to
pay it back. By comparison, yields
on 10-year debt issued by the Greek
government are currently 8.7 per
cent.
For Germany, they are minus 0.11
per cent, meaning investors pay the
government to keep their money
safe.
The fall in yields comes as all
three major credit ratings agencies
cut the outlook on the UK’s credit
rating to negative and the
probability of the UK government
defaulting on its debt jumped to its
highest level in three years.
Neil Williams, chief economist at
Hermes Investment Management,
told City A.M.: “In the rating
agencies’ eyes, Brexit is putting the
UK’s credit worthiness under the
spotlight. But the referendum
outcome is only the latest chapter
in what will prove to be a
protracted story of lower-for-longer
bond yields.”
BHP Bilton closed
down at 1.68 per
cent to 841.90p
Mixed fortunes for London miners
JESSICA MORRIS
@jssmorris
THE FALL-OUT from the UK’s Brexit
vote was a boon for precious metal
miners yesterday, but this wasn’t the
case for the whole sector.
Shares in Mexican precious metals
miner Fresnillo swelled seven per
cent to 1,483p per share, while
Randgold Resources added 9.02 per
cent to 8,035p and gold miner
Centamin finished the day 8.15 per
cent higher at 130.10p.
“In light of the UK voting for a
Brexit, we expect gold to provide a
haven for investors. Coupled with
sterling weakness we see upgrades for
all gold producers in the near term,”
Kieron Hodgson, a commodity and
mining analyst at Panmure Gordon,
said.
But BHP Billiton closed down 1.68
per cent to 841.90p, while Anglo
American ended 4.42 per cent lower
at 629.90p.
Glencore finished down 2.8 per
cent at 135.55p and Lonmin slumped
5.69 per cent to 161.50p per share.
Copper prices rose yesterday as
funds and traders reversed short-term
bets of low prices on expectations of
economic stimulus, Reuters reported.