UK’s credit rating could be downgraded and pound fails to recover to pre-election levels as uncertainty over Brexit and May’s government continues
THE UK’s credit rating is at risk of a downgrade after the “inconclusive” General Election result.
Global ratings agency Moody’s said a hung parliament “heightens uncertainty over Brexit negotiations and increases fiscal risks”.
But the agency also said the lack of a decisive majority party could result in the Government pursuing a “softer” Brexit, which it called “credit positive”.
Meanwhile the pound has failed to recover to its pre-election levels after a shock result denied any party a majority in parliament last week.
Sterling tumbled by more than 2 per cent against other currencies after the UK election ended in a hung parliament – a result flagged by some currency experts as the worst possible election outcome due to the uncertainty it creates.
Although the pound stabilised this morning and is currently trading at $1.27 against the dollar, it is still lower than it was on the day before the election when it was trading around $1.29.
Sterling also dipped 0.1 per cent against the euro to 1.1367 euros.
"The lack of moves [in sterling] is more because the market is waiting for fresh information, rather than a sign that it is settling down," said Schinichiro Kadota, a foreign exchange strategist at Barclays in Tokyo.
"There is still heightened uncertainty surrounding issues, including how the stance toward Brexit talks might change," he said.
Neil Wilson, senior market analyst at ETX Capital said the election has plunged the UK into “another political mess”.
“A deal with the DUP does seem to be keeping a something of a floor under the pound for now but there could be further to fall if the DUP arrangement comes unstuck and May loses a confidence vote.
"This would increase the likelihood of a second election and heighten the chances of a Corbyn-led government, which might spook the market,” he said.
While the pound has fallen, the FTSE 100 soared above 7,500 points when the London stock market opened on Friday.
Because many of the FTSE 100 companies earn their money abroad, a weaker pound means profits earned abroad are worth more when converted back into sterling.
Theresa May will face questions today from angry Conservative MPs as her future as a party leader hangs in the balance.
May is under pressure to please the DUP – as the Conservatives seek to secure a deal with them to ensure they have a Commons majority.
Downing Street confirmed the PM would host DUP chief Arlene Foster in London on Tuesday.
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