Fund managers’ growing concern about UK recession

Asset managers have reacted to grim economic figures by seeing a heightened threat of recession in the UK.

Azad Zangana, senior European economist at Schroders, said recent indicators – including the biggest ever drop in an influential purchasing managers index – were “alarming”.

The UK Office for National Statistics said the UK economy grew by 0.6% in the three months to June 30 – but in the wake of the June 23 EU referendum, business confidence in the UK has fallen to a lower point than the nadir of the 2008 Lehman Brothers crisis.

The Markit Purchasing Managers’ Composite Index saw its biggest ever drop between July 12 and July 21, and the Confederation of British Industry’s Industrial Trends Survey suggested activity had slumped to levels unseen since the financial crash.

Zangana said: “We place a 40% chance of a recession in the near term. What the GDP figures tell us is that the economy was on a robust footing before the Brexit shock hit.”

Other firms have issued similarly bleak forecasts. Financial adviser St. James’s Place predicts GDP could shrink by 0.4% this quarter, and David Page, senior economist at Axa Investment Managers, said Axa had downgraded its GDP forecasts for 2016 and 2017. For this year Axa’s forecast moved to 1.5% from 1.8%, and for 2016 it shifts to 0.4% from 1.9%.

Page expects the UK to exhibit permanent “near recessionary” conditions over the next two years.

Philip Hammond, chancellor of the exchequer, said the government “might reset fiscal policy” if necessary.

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