Brexit to trigger UK recession over coming year: BlackRock

Tue Jul 12, 2016 12:24pm EDT
 
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By Jamie McGeever

LONDON (Reuters) - Britain will fall into recession over the coming year and growth in each of the next five years will be at least 0.5 percentage points lower as a result of Britain leaving the European Union, BlackRock Inc (BLK.N: Quote) said on Tuesday.

"Our base case is we will have a recession," Richard Turnill, chief investment strategist at the world's largest asset manager, told reporters at the firm's investment outlook briefing.

"There's likely to be a significant reduction of investment in the UK," he said, adding that Brexit will ensure political and economic uncertainty remains high.

Turnill and his colleagues expect the Bank of England to cut interest rates to zero this week from the current all-time low of 0.5 percent, and expand its quantitative easing bond-buying program next month.

"The market is not entirely priced for that yet," said Scott Thiel, BlackRock's deputy CIO and head of global bonds. This means sterling will fall further, although not as low as parity against the dollar unless in "extreme circumstances".

The BoE will resume buying gilts before dipping its toes back into the corporate bond market, Thiel said, noting the European Central Bank's success in narrowing corporate bond spreads through its bond purchases in that market.

Sterling hit a 31-year low of $1.2796 last week, down around 15 percent since the June 23 referendum although it has since clawed back some ground against the dollar and the euro.

New York-based BlackRock oversaw $4.7 trillion in assets globally as of March 31. Of that, $1.5 trillion was in fixed income assets.   Continued...

 
Traders from BGC, a global brokerage company in London's Canary Wharf financial centre react as European stock markets open early June 24, 2016 after Britain voted to leave the European Union in the EU BREXIT referendum.       REUTERS/Russell Boyce/File Photo