A "hard" Brexit in which Britain loses its free access to the European Union market now looks like the most likely outcome of the country's plan to leave the bloc, ratings agency Standard & Poor's said.

Britain will suffer the brunt of the economic impact of Brexit and the effects on the world economy will be more limited, S&P said in its latest update on Britain's economy.

S&P cut Britain's top-notch AAA credit rating by two places to AA shortly after the June 23 vote to leave the EU, arguing that the country's capacity for effective and stable policymaking had diminished.

On Friday, it said that it appeared that Britain's government had not yet accepted that the EU was unlikely to yield on the indivisibility of its four freedoms - the free movement of people, capital, goods, and services.

"Even if Westminster were to acknowledge the EU position, it is hard to fathom how a rather hard Brexit can be avoided unless both sides become much more flexible than they appear today," said S&P chief sovereign credit officer Moritz Kraemer.