If UK votes for Brexit, its borrowing costs will soar – here’s why

How would the credit-ratings agencies respond to Brexit - the United Kingdom leaving the European Union?

Only recently, credit-rating agency Standard & Poor’s fired a warning shot, saying that the UK would be downgraded one notch on leaving, and this could double if relations with Brussels soured. And unlike Standard & Poor’s, the other two main credit-ratings agencies, Moody’s and Fitch, have already stripped Britain of its precious AAA rating – the highest possible. If all three downgraded Britain after a Brexit, the road back to AAA status would be even harder.

Sovereign credit ratings estimate the probability that a country will default on its debts. They set the tone for the borrowing costs in international markets both for the country and the financial institutions operating there. Increasing the interest rates that the country pays to borrow means less money to spend on schools, hospitals and so forth.