UK recession, unusually, to punish gilts and pension funds

Not only are the chances of a UK recession rising, it may be the rare recession in which bond owners get badly beaten up.

Coming at a time of critical underfunding among UK pension funds, who have been among the biggest buyers of otherwise poor-value gilts, a bond-punishing recession would further undermine Britain’s retirement system.

With a fragile Conservative-led government engaged in fraught Brexit negotiations in which they are the weak hand, bad economic news continues to rain down on Britain.

A survey from credit-card company Visa released Monday showed consumer spending falling by 0.3 percent in the three months to June compared to a year ago. Another from accountants Deloitte showed 72 percent of CFOs gloomy about post-Brexit business prospects. Companies expect a fall in hiring, capital expenditure and discretionary spending, Deloitte said.

Not only are they not spending, British consumers are spending the smallest proportion of disposable income in more than 50 years, as below-inflation wage growth hits home. This is in an economy which was already at something close to a stall: first-quarter GDP growth, released in late June, showed the economy expanding at just 0.2 percent a year.

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