Carney warns on UK credit ratings under 'no deal' Brexit

Mark Carney gives evidence to the House of Commons Treasury select committee
Mark Carney gives evidence to the Treasury Select Committee Credit: Parliament TV

Credit ratings of the UK government and institutions could be thrown into doubt under a no deal Brexit, the Bank of England governor has warned.

Plans to ensure that the EU still recognised the UK’s credit ratings needed to be “brought over the line”, Mark Carney told MPs on the Treasury Select Committee on Wednesday.

He said that the Bank intended to retain, if not “improve, our [the UK’s] credit rating”.

However, time was short to ensure that EU regulators would recognise UK credit ratings in the event of no deal. Without recognition, EU banks and insurance companies might be “discouraged from holding securities” with UK ratings, according to the Bank’s Financial Stability Report.

The issue would also apply in reverse, with UK financial institutions potentially unable to rely on EU credit ratings, potentially triggering considerable market disruption.

A credit rating is a score based on a calculation of borrowers’ risk of default and are applied to securities such as sovereign bonds.

They often determine the cost of borrowing and many institutions have scores below which they will not purchase securities. A lower credit score can increase borrowing costs.

Mr Carney’s warning on what he described as an “important” but “narrow planning issue” comes after credit rating agency Moody’s told the Telegraph that the UK’s sovereign rating would be at risk if it failed to pay its Brexit divorce bill.

Any failure by a country to pay what it had promised could be considered a default, Moody’s said.

The governor said that if a deal on the future relationship with the EU was secured, it would need to make careful consideration of how the UK could develop independent regulation of financial markets and institutions.

Many of Threadneedle Street's achievements since the 2009 financial crisis were a result of “independent macroprudential responsibilities and powers given to us by parliament”, Mr Carney said.

He added: “Of course it would matter if for whatever reason the nature of the deal shifted those responsibilities either to other authorities or somehow constrained our ability to take those decisions.”

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