Another economic blow for U.K. after Brexit vote

Last Updated Jun 27, 2016 5:24 PM EDT

LONDON - The economic fallout continues from the United Kingdom's shock June 23 vote to leave the European Union.

Standard & Poor's has stripped the country of its top credit grade in the wake of the so-called "Brexit." The rating agency downgraded the U.K.'s sovereign rating by two notches, from AAA to AA, saying the vote is a "seminal event" that "will lead to a less predictable, stable and effective policy framework in the U.K."

It is also keeping a negative outlook on the rating, which means it could downgrade the country further.

The credit rating agency added in a report published Monday that the outlook reflects the risk to the economy and public finances, as well as the pound's role as an international reserve currency.

It also cited "risks to the constitutional and economic integrity of the U.K." as Scotland's strong vote to remain in the EU could raise the prospect of another referendum on Scottish independence.

Fitch Ratings also lowered the U.K.'s credit rating to AA, down a notch from AA+. The rating agency said in a report that Brexit will hurt the U.K.'s economy and government finances, as well as cause political instability.

Fitch also pared its forecast for U.K. growth this year to 1.6 percent, from 1.9 percent, while also sharply cutting back its GDP estimate for 2017 and 2018.

"Fitch believes that uncertainty following the referendum outcome will induce an abrupt slowdown in short-term GDP growth, as businesses defer investment and consider changes to the legal and regulatory environment," the firm said.

Moody's last weekend also reduced its outlook for the British economy.

Markets continued to slump Monday amid continued uncertainty about what's next after U.K. voters decided to leave the European Union. The Dow shed 307 points, or 1.8 percent, to 17,093 at 2:15 p.m. Eastern time. The Nasdaq lost 121 points, or 2.5 percent, to 4,587. And the S&P 500 declined 41 points, 2 percent, to 1,996.

When you get major news like this that is unexpected, as the 'Brexit' vote was, it often takes about five trading days to kind of work through the system," said JJ Kinahan, chief strategist at TD Ameritrade.

The losses followed a brutal Friday after British voters narrowly voted for Brexit a day earlier. Markets across the globe tumbled, the pound fell to a low not seen since the 1980s and gold prices surged. Benchmark indexes saw their gains wiped out for the year, with the Dow Jones industrial average shedding 611 points in its biggest single-day drop since 2008.

European stock markets added to their painful losses from Friday, when concern over the vote outcome wiped out $2.1 trillion of stock value from Hong Kong to London to New York. Britain's FTSE 100 fell 2.5 percent, while Germany's DAX and France's CAC 40 each gave up 3 percent.

Traders were watching for more aftershocks as EU leaders press London to start the complex process of leaving the 28-nation trading bloc. Prime Minister David Cameron wants to wait several months.

"Markets will be nervous given that the EU and U.K. have some mismatch in terms of timing of exit procedures and negotiations," said Mizuho Bank analysts in a report.

Leaders of Germany, France and Italy said Monday there can be no negotiations with Britain on the country's departure from the European Union until London has formally declared its intention to quit.

German Chancellor Angela Merkel says, "we agree there will be no formal or informal talks" with Britain until Article 50 has been invoked.

Merkel spoke Monday in Berlin after meeting with French President Francois Hollande and Italian Premier Matteo Renzi.