Insight Investment’s head of strategy, Matthew Merritt, gives his views on current global economic conditions in a deflationary environment and predicts further cuts are on the horizon for the UK and Europe.  

Merritt comments:   “2008 remains etched on most investors minds.  Parallels with the 1930s have become common place partly because declines in risk assets have surpassed those seen in intervening bear markets, cyclical recessions or financial dislocations.  In the next few weeks we expect further interest rate cuts in both the UK and Europe.  In the US where rates are already close to zero monetary policy had moved into an unconventional territory of quantitative easing."

He continues: “There are some signs that broad financial conditions are beginning to loosen. In equities, this has led to a rebound in value in the US as bargain hunters come out of the bunkers.  Notably however, one value sector - financials – has failed to lead, reflecting the fear that the second round effects of the credit crunch (real economic weakness) are still in their early stages.”

He concludes: “Until we are closer to seeing at least a moderation in the rate of economic decline we are unlikely to see a sustained rally in risk assets. However, bear market bounces can be large and have duration measured in months.  With Wall Street having suffered its second worst year since 1800 we are alert to relief rallies but more importantly we need to be looking for indications of when the raft of policy initiatives being put in place are likely to gain some traction.“

- Ends -

For further information please contact:

Insight Investment press office                     Tel: 020 7321 1358

Notes to editors

This press release represents Insight’s view as at 7 January 2008

Insight Investment Management (Global) Limited is the asset manager of HBOS plc. Registered in England and Wales . Registered office 33 Old Broad Street, London EC2N 1HZ. Registered no. 827982. Authorised and regulated by the Financial Services Authority.

Insight Investment manages funds for institutional and retail clients across a range of asset types including equities, bonds, derivatives and alternatives, with the aim of providing precise investment solutions for investment needs. Insight’s assets under management totalled £110 billion as at 30 September 2008.

www.insightinvestment.com