How Brexit Will Impact Bonds in 2018

Euan McNeil, co-manager of the Kames Investment Grade Bond fund says Brexit progress to dominate outlook for fixed income investors

External Writer 2 January, 2018 | 1:49PM

As the experience of the past 18 months has proved only too well, predicting the outcome of political events, and more importantly their influence on markets, has generally been a fruitless task. The conventional wisdom around the likely outcomes of the Brexit vote and the US presidential election proved spectacularly wrong. The initial forecasts of domestic economic doom in the immediate aftermath of Brexit also proved to be wide of the mark, at least in part due to the prompt action of the Bank of England.

The biggest influence on the economy is likely to be Brexit

However, there has been clear evidence of a slowdown in UK growth in recent months, which was confirmed in the Budget in late November by the OBR’s downgrade to UK growth. It is difficult to disagree with this assessment given the ongoing uncertainty around Brexit negotiations. Our expectation is that this caution will also permeate decision-making at the Bank of England next year. It would be foolhardy on the part of the Bank to engage in a series of rate hikes against this backdrop.

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