Brexit keeps UK debt outlook "negative": Fitch, S&P

Photo: Reuters

Both agencies affirmed their 'AA' high-grade rating on British short- and long-term sovereign debt but they pointed to the recent deadlock in Brexit talks as reason to worry for the British economy.

Six months since authorities in London triggered the process for exiting the European Union, a second phase of talks on future EU-British trade relations has yet to begin.

Failure to reach an agreement could leave Britain without privileged access to the largest market for its goods and services after it leaves the economic bloc in 2019.

"The limited time left for negotiating a framework for a future relationship, along with internal divisions among British policymakers, has increased the risk of a disorderly Brexit," S&P said a in statement.

A clear sticking point is the exit payment, or the amount of money Britain will have to pay into the EU budget, honoring commitments made during Britain's EU membership even as it prepares to leave.

British officials appear to have offered about 18 billion pounds ($23.64 billion) while the European side favors something close to 100 billion euros ($116 billion).

According to S&P, British negotiators are seeking to sever ties to the EU Single Market and Customs Union to regain control of their borders and immigration while at the same time retaining trade arrangements as close possible to those provided by EU membership.

But with the Conservative Party's loss of their parliamentary majority in June's snap elections, the British negotiating position appears less than cohesive -- increasing the chances of a "no-deal" Brexit, according to Fitch.

"We believe that no single post-Brexit relationship with the EU commands either majority parliamentary or popular support. This increases the uncertainty about the outcome of the withdrawal negotiations," Fitch said in a statement.