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 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.