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Woodford plays down ‘no deal’ with new Brexit report

Fund manager Neil Woodford has played down the impact of a ‘no deal’ Brexit as his firm publishes a second report on the country’s exit from the European Union.

The Capital Economics report, commissioned by Woodford and published on its website, forecasts a price tag of €37.8bn on the exit bill the UK will have to pay when it leaves.

Titled Where are we now, the report is broken into sections including sector analysis of manufacturing, life sciences, financial services, and property and construction.

It even argues some of the £350m weekly savings, a contested figure from the Leave campaign, could go towards the life sciences sector, in which Woodford is a big investor.

The report also includes a macroeconomic assessment, as well as sections covering the Brexit impact on consumers, public finance, trade, regulation and migration.

It is the second Brexit report Woodford has commissioned from Capital Economics, which is headed by its eurosceptic founder Roger Bootle, with the first published in the lead up to the referendum.

Woodford refused to comment on the company’s ownership.

The latest report predicts the most likely Brexit outcome is a “compromise deal” whereby an agreement is reached on citizen rights, the Irish border and the financial settlement towards in autumn 2018 and the UK makes smaller contributions to the EU akin to what Switzerland pays.

However, the report considers “no deal” and a deal with “ambitious policies” alternative outcomes.

Within financial services, the report plays down the loss of passporting, arguing it represents less than 10 per cent of financial services, but says the loss of euro clearing is a bigger concern.

Head of investment communications Mitchell Fraser-Jones says the fund house finds the report’s conclusions “reassuring”.

“It reinforces our confidence that the portfolios are positioned appropriately for the long-term outcomes that are forecast,” Fraser-Jones says.

Life sciences, for example, an important part of Woodford’s portfolios, enjoy upside from post-Brexit deregulation under the report’s base case scenario with the UK expected to continue partnerships with the EU, despite losing the European Medicines Agency.

The report argues overall the UK has enough going for it to survive without EU membership.

It says the UK benefits from: a prestigious higher education sector; a large pool of skilled employees in high-value sectors such as finance, biotechnology and information technology; good transport connections; a welcoming political environment; the global status of London, and a strong rule of law.

In the lead up to the Brexit referendum, Neil Woodford said a Leave vote could be positive for investors as sterling depreciation would help exporters. On the day votes showed the UK would be leaving the EU, Woodford said he would not be changing his investment strategy.

This summer the UK equities manager went on a buying spree of domestically-focussed stocks in a contrarian bet on the UK economy.

Fraser-Jones says the report is about economics, not politics.

Key points from the report:

  • Trade

There are opportunities in trade following Brexit, the report says, arguing the importance of EU trade to the UK is in decline. “Britain will have the opportunity to pursue valuable new trading agreements with a wide range of countries outside Europe, where most of the global growth is now occurring,” it says.

It expects trade deals with the US, Australia and New Zealand to be completed by 2022, followed by India and China in 2024 and Brazil the following year.

The report also notes a large proportion of the economy doesn’t participate in international trade.

  • Regulation

It argues deregulation will add 0.5 per cent gains to UK GDP or up to 1 per cent under “ambitious deregulation”.

  • The City

The report plays down the impact on the City, despite acknowledging the negative impact from the loss of passporting and euro clearing if they are not included in a deal with the EU. It argues Brexit will open the possibility for the UK to gain a regulatory advantage over continental rivals and to negotiate trade deals that are more inclusive of financial services.

  • £350m claim

“There are potential benefits in terms of deregulation, cooperation with the US and perhaps some of the much-discussed £350m/week for healthcare,” the report says.

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