S&P warns Brexit could jeopardise pound's standing

Ratings agency Standard & Poor's has said that a vote to leave the European Union could jeopardise the pound's standing as an international reserve currency, potentially threatening the UK's credit rating.

S&P said leaving the EU could deter foreign investment in the UK. Picture: John Devlin

The warning comes after the Institute for Fiscal Studies (IFS) said the UK could face two more years of austerity in the event of a vote to leave the 28-nation bloc on 23 June.

S&P analyst Frank Gill said that an exit from the EU could deter foreign direct investment and “other capital inflows.”

A reserve currency is held by governments of other countries as part of their foreign exchange reserves and is considered as safe to use to pay off foreign debt.

The IFS think-tank said a vote to leave could see public finances take a hit of up to £40 billion in 2019-20, if gross domestic product is 2.1 to 3.5 per cent lower over the period, as predicted by the National Institute of Economic and Social Research (NIESR).

Gerard Lyons, co-chair of Economists for Brexit, said: “The IFS’s forecasts follow directly from the economic growth numbers. If one has a more upbeat view of the economic outlook with Brexit, as the Economists for Brexit group does, then naturally the budget numbers improve considerably.

“The analysis from the IFS highlights how vulnerable UK finances are to any economic setback, but we could easily suffer such a setback remaining in the EU.”