Good News For GBP Bonds In 2017

Morgan Stanley expects “Brexit to drive lower and more volatile growth” in 2017 and beyond, the investment bank warned in a note sent to clients on Wednesday afternoon.

The bank said in its 2017 UK economics and strategy note that it predicts the UK will move to “BBB” economic growth as a result of Brexit-driven uncertainty — “below-par, bumpy, and brittle.”

The bank expects growth to slow dramatically in the coming years (below par), be more likely to face shocks due to the political environment (bumpy), and more vulnerable to those shocks when they do come (brittle).

Morgan Stanley likens the economic environment to 2011-12 when Europe was gripped by a debt crisis and Britain was struggling with what was thought to be a “double-dip” recession. (Subsequent data showed this wasn’t actually the case.)

Morgan Stanley also believes the Bank of England will cut interest rates yet again, to 0.10%, to soften the impact of rising prices. The interest rate rise should come in May of next year and Morgan Stanley also expects more quantitative easing in 2018.

Read more at http://www.businessinsider.sg/morgan-stanley-brexit-article-50-analysis-britain-will-turn-into-a-bbb-economy-2016-12/#77GLmTSUZb5Hil7r.99

Personal Thought:
Cutting of interest rate and more QE are generally good for bonds. Investors should invest into issuers which are not too dependent on UK economy.

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