Fears over access to capital push UK's country-risk score to new low

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By:
Graham Bippart
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The UK has fallen to its worst score in Euromoney Country Risk’s (ECR) latest quarterly survey, as experts fret about its future access to capital.

Economic and political analysts are becoming more concerned about the UK’s future access to capital markets after Brexit, a fear that helped push the UK down one place on ECR's combined country risk scorecard in the first quarter of 2017.

ECR has published the result of its first country risk survey of 2017, showing that although Europe is generally on the up, the UK dropped from 20 in the last quarter of 2016 to 21 this quarter.

Overall, the UK’s country risk score fell by 0.64 to 70.64 – a new low for the country, which now sits behind Macau (up two places at 19) and South Korea (down one place at 20).

The experts surveyed are concerned that the UK’s cost of raising capital will increase. As talks with the European Union progress and the date of Brexit draws nearer, a new relationship between the UK and Europe could involve trade tariffs imposed under World Trade Organization rules, which would be particularly punitive for the UK.

Aftermath

The UK’s credit rating suffered almost immediately in the aftermath of the UK’s referendum last summer. S&P downgraded it two notches from AAA to AA. S&P, as well as many financial professionals, are predicting a hard Brexit that sees the UK leave both the common and single markets, in large part so that it can regain control over immigration policy.

“But insisting on control over freedom of residence of European citizens will probably cost the UK access to the single market for goods, services and capital as well, or at least much of it,” S&P analysts said in November.

Countries’ combined ECR risk scores are comprised of six weighted components: economic (at 30% weighting), political (30%), structural (10%) and three quantitative values – debt indicators, credit ratings and access to bank finance/capital markets – at 10% each. ECR surveys more than 400 economists and other experts.

According to the survey, the UK’s economic assessment score dropped by 0.25 to 54.98, while its political assessment dropped 0.28 to 77.77 and its structural assessment by 0.03 to 68.74. Combined risk scores are assessed on a scale from 0 (riskiest) to 100 (total safety).

However, it was access to capital, which is included in the overall score but assessed by a separate survey of banks’ debt capital markets and syndicated loans desks, that hurt the UK’s score the most. Experts’ assessment of the UK’s prospects in that regard fell 0.47 to 9.33.

According to ECR, Europe contributed significantly to improving risk scores among the G10 group of countries, due to the continent’s “rosier economic prospects” and because “confidence is gaining as monetary policy stimulus and reviving global trade spur recovery, leading to stronger employment trends and improving fiscal positions”.

Of the 186 countries ECR surveyed, 79 were downgraded and 77 upgraded. The rest remained unchanged.