Standard and Poor's has cut the European Union's (EU) credit rating from AA+ to AA, the third-highest investment-grade rating. The American ratings agency said on 30 June that the downgrade was a result of the UK deciding to leave the EU.
S&P explained that a win for Brexit reduced the EU's fiscal flexibility, while reflecting a weaker political unity. "Our baseline scenario was previously that all 28 member states would remain inside the EU.
"While we expect the remaining 27 members to reaffirm their commitment to the union, we think the UK's departure will inevitably require new and complicated negotiations on the next seven-year budgetary framework.
"Going forward, revenue forecasting, long-term capital planning, and adjustments to key financial buffers of the EU will in our view be subject to greater uncertainty," S&P said, according to BBC.
Despite the downgrade, the ratings agency said that the outlook was stable, but this was amid its expectations that no other member state would leave the EU. It also expects the rating to remain unchanged, even if the UK withdraws from future budget commitments.
Meanwhile, reports said that apart from this downgrade, S&P had also changed its opinion on EU solidarity from positive to neutral. The agency is said to have revealed that it now anticipated greater uncertainty over the EU's long-term capital planning, revenue forecasting and financial buffer adjustments.
The downgrade comes just days after Fitch Ratings said that the win for the Leave campaign would not affect its ratings for the EU, the European Investment Bank, which is EU's nonprofit long-term lending institution and the European Investment Fund – a EU agency for the provision of finance to SMEs. Fitch currently has a rating of AAA for the EU.
Earlier, S&P had downgraded the UK's credit rating from AAA to AA. The American agency had reasoned that Brexit's win could lead to "a deterioration of the UK's economic performance, including its large financial services sector".