Markets show "significant chance" of negative interest rates

The market is now also giving a 50% chance of an interest rate cut in July, a 65% chance of a cut by August, and an 80% chance of a cut by the end of the year.

Meanwhile the 10 year gilt yield fell below 1% for the first time this morning, to 0.933%, before recovering slightly, as investors sought the safety of government bonds in the face of Brexit uncertainty.

Laith Khalaf, Senior Analyst at Hargreaves Lansdown, commented: "The Brexit vote has substantially moved the dial on interest rate expectations, with markets now pricing in a significant chance of rates going negative in the UK.

"The Bank of England may soon find itself between a rock and a hard place, if the economy and inflation start pointing in different policy directions. That’s because although the Brexit vote has increased economic uncertainty, it has also taken a toll on Sterling, which is likely to feed through into inflation because it makes imports that much more expensive. This raises the uncomfortable prospect for the central bank of cutting interest rates while inflation is rising, something it has proved it is willing to do in the past in order to boost the economy.

"The flight to safety and the shift in interest rate expectations pushed yields on the 10 year gilt below 1% for the first time this morning. This represents a vote of low confidence in the UK economy, though it does at least signal the bond market still expects the UK government to pay its debts, despite threats of credit downgrades from the ratings agencies.

"Property funds are also likely to come under pressure in the coming days as valuers reassess the prospects for the UK property market. Indeed we have already witnessed one fund cut its price by 5% overnight to reflect the uncertainty of pricing in the commercial property market."