Jersey outlook upgraded from negative to stable

Tuesday 21 January 2020

The Conservative Party's thumping majority in the recent UK General Election has boosted the outlook for Jersey's economy with one of the top credit rating agencies - from negative to stable.

Standard and Poor's say they have taken into account the fact that the UK is now in a better position to negotiate with the EU over Brexit, and so some of the immediate risks to Jersey have dissipated.

They have also reviewed Jersey’s long- and short-term sovereign credit ratings, which have been maintained at 'AA-/A-1+'

The review, which is part of the cyclical six-monthly assessment process, reflects the UK rating revision from a negative outlook to stable following the election, which S&P believe will now give the UK government more room to engage with the EU over their future relationship. 

Pictured: The recent UK General Election result has impacted the outlook for Jersey's economy.

The Minister for Treasury and Resources, Deputy Susie Pinel, said: “This is a really positive outcome and reflects that Jersey has demonstrated it has very strong capacity to meet its financial commitments through the work the Government has undertaken to bolster reserves and prepare Jersey for a potential economic downturn.

"The Government does however, remain conscious of the potential risks to Jersey’s economy, pending the outcome of the UK’s future negotiations around Brexit and we will therefore continue to take a cautious approach in our financial planning.”

Other points made by S&P in their analysis are:

• In an orderly Brexit scenario, we anticipate that Jersey will remain vulnerable to the level of access that the U.K.'s financial services sector has to the EU, and also to any potential changes in taxation and regulation for the sector in the U.K. that could render it more competitive vis-à-vis the Crown Dependencies. Any changes in the U.K.'s immigration policies would also have an impact on Jersey, where EU nationals currently represent nearly a quarter of the workforce.

• In the event of a scenario where the U.K. and the EU cannot agree on the terms of their future. relationship and the U.K. falls back to trading with the EU on World Trade Organization norms, Jersey is likely to be exposed to supply-side disruptions, given that most of its imports are routed through the U.K. We understand, however, that the authorities have contingency plans in place to cope with such an event. In our opinion, the effectiveness of such plans could eventually depend on considerations outside the authorities' control, such as the length of any potential disruptions and the U.K.'s preparedness.

• In 2018, Jersey ran a general government deficit of 0.6% of GDP, compared with a surplus of 1.3% of GDP in 2017, due to higher social security expenditure. In 2019, we estimated the deficit to have widened further to 1.4% of GDP in line with higher planned capital expenditure. The final fiscal outcome for the year will depend on the dynamics of the social security account. From 2020 onward, we anticipate the deficit will gradually narrow to below 1% in 2023. We expect that Jersey will finance these deficits via asset drawdowns.