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Brexit...pursued by bear market?


Jim Leaviss, Head of Retail Fixed Income at M&G Investments

The “Leave” vote is likely to prove negative for UK economic growth. Investment plans may be shelved by businesses, and consumers may become more cautious. Inflationary pressures could be stoked by higher import price and a recession cannot be discounted. Global economic growth is likely to be negatively affected, reducing the likelihood of monetary tightening in the US, and the Brexit vote has also led to deepening concerns over further fragmentation of the EU. Higher-risk fixed-income assets are expected to be the biggest losers in bond markets. Nevertheless, the sell-off in risk assets presents some attractive opportunities for long-term investors.

Paul Lambert, Head of Currency, Insight Investment
Howard Cunningham, Fixed Income Portfolio Manager, Newton Investment Management
Paul Hatfield, Chief Investment Officer, Alcentra
Mark Bogar, European Smaller Companies Manager, The Boston Company Asset Management

The “Leave” vote is likely to have a lasting impact on UK economic growth and sterling, as businesses and consumers defer spending activity until there is greater clarity. Shorter-dated gilts may benefit as activity slows and the prospect of higher interest rates recedes. Sterling corporate bonds face conflicting forces: although greater uncertainty may generate higher credit spreads, their attractions may be boosted by low yields on euro-denominated bonds. The long-term outlook depends on whether the UK can renegotiate a good outcome with the EU; in the meantime, the possibility of another recession in the eurozone has become more likely.


The vote to “Leave” is a seismic result for the UK. Its implications will be felt beyond UK borders, with immediate – and possibly long-lasting – effects on global trade and asset markets. The initial decline in UK share prices following the referendum could signify the beginning of an extended period of weakness for UK – and, indeed, European – markets. Ongoing uncertainties about the UK’s exit from Europe are expected to generate to structural questions surrounding the EU’s longer-term prospects. In particular, speculation is likely to intensify around the possibility that other disaffected member countries might see their future outside the EU.

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