Bearish

Crash - fears of recession materialise and Brexit ends badly

Uncertainty crystallises into an unpleasant reality, the long-awaited recession abruptly catalysed by Covid-19 resulting in either deflation or more plausibly, excessive inflation. Confidence of consumers and business takes time to be restored.

Past parallels: this scenario uses the numbers from the Global Financial Crisis to simulate plausible factor returns in the event of market panic. We recognise that the current cyclical position is different - at the time of the GFC onset low-priced areas TS (Teesside) etc were cyclically poor value while London was cyclically good value. Now we have a different situation where outer commuter and midlands are high-priced, while prime central london and the far north are not. This is reflected in the simulation, which shocks the market as a whole but allows the cycle to continue unabated, just as it did in the GFC, albeit from a different starting point.