Fitch signals Irish credit rating safe despite UK exit

Fitch Ratings yesterday signalled it would not downgrade Ireland’s credit rating despite the huge market turmoil and warnings of slower growth here after the UK voted to quit the EU.

Fitch signals Irish credit rating safe despite UK exit

The ratings firm said the vote raised both economic and political risks, including in the North, but that the Republic’s debt rating would not be affected for the time being.

Fitch and rival ratings firm S&P Global have in recent days downgraded the UK’s sovereign rating in the wake of the Brexit vote, while Moody’s has issued a negative outlook on the UK.

Fitch currently scores Irish government debt an ‘A’, with a stable outlook, meaning it is neither minded to upgrade nor downgrade the rating in its next review.

The signal came on the day when currency and stock markets traded calmly for the first time in three sessions.

Shares in Bank of Ireland and Ryanair clawed back some losses but remain sharply lower from last Thursday, when the UK referendum took place.

They are among a number of big-name Irish stocks whose earnings are exposed to any potential slowdown in the UK economy and to the long-term slump in the value of sterling against the euro.

Sterling yesterday stemmed its sharp losses after the unexpected result raised alarm in global markets. The currency rose slightly against the euro, to 82.9p, but is still down almost 6.5% in the past three trading sessions.

The UK will need to raise taxes and cut spending this year to stabilise its public finances, chancellor George Osborne said yesterday.

Mr Osborne said Britain would be poorer due to the public’s decision to leave the EU, which he had campaigned against, and that the country now needs to deal with the economic consequences and tackle new social divisions.

In its report, Fitch said a depreciating sterling and a slowdown in UK economic growth and new trade barriers across the Irish Sea “would weigh on Irish exports, economic growth, and employment”.

The ratings firm appeared sceptical the Republic would benefit to any great extent from luring disaffected companies from the UK, saying any such relocations remain “highly uncertain”.

Fitch was, however, more strident on the downside risks to the peace process and trade within Ireland, stating that “Brexit would represent a symbolic moving apart of the UK and Ireland that could weaken confidence in the peace process in Northern Ireland and potentially impair cross-border relations and trade”.

In an interview with the Irish Examiner last month before the Brexit vote, Moritz Kraemer, chief sovereign rating officer at S&P Global Ratings, said there was no reason for S&P to trigger a downgrade for Ireland, even if the UK were to lose its AAA rating in the event of it deciding to pull out of the EU.

Subsequently, S&P, in a review early this month, left its Ireland rating at A+, with a stable outlook.

While currency markets have been embroiled by the Brexit vote since last Thursday, eurozone government bond markets have been marked by their resilience, with yields in many countries, including those of Ireland, barely flickering.

Analysts say that’s because of the massive buying support provided by the ECB — which has the firepower to buy €80bn a month in eurozone bonds.

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