Neil Woodford has rejected gloomy UK growth forecasts from the Office for Budget Responsibility revealed in yesterday’s budget, arguing the country is on track to achieve annual growth around 2 per cent.
According to the OBR, growth this year will be 1.5 per cent, and fall to 1.4 per cent in 2018. Through 2019 and 2020, growth is set to fall again to 1.3 per cent, before picking up to 1.5 per cent in 2021 and then to 1.6 per cent in 2022.
However, the OBR says the Government refused to give it additional information on Brexit relevant to its economic forecasts hindering its ability to make meaningful outlooks for the UK economy.
Today, UK GDP growth was confirmed at 0.4 per cent for Q3 in the second estimate, pointing to 2017 growth of 1.5 per cent.
Woodford says the OBR’s downgrade represents more cautious perspective on productivity and some implicit caution on Brexit.
“The OBR has been wrong on productivity over past five years, and as far as I can see, there’s no reason to believe that they will get it right over the next five years,” Woodford says.
The equities manager points to the fact UK productivity went up in the last quarter.
Woodford says he instead expects GDP growth to be in the region of 2 per cent for the next three to five years.
The star fund manager also notes the 4.4 per cent increase in the living wage underwrites his belief that the economy will return to real wage growth next year, alongside increased credit growth and better export performance.
This makes up the ingredients for a decent growth outcome from the UK economy in the years ahead, Woodford says. “Something the consensus is not expecting.”
Indeed, investors gave a damning verdict on Brexit challenges facing the UK following the Chancellor’s budget speech, arguing the UK’s exit from the EU overshadows anything announced by the Government.
Overall, Woodford says the budget is supportive of the more positive outcome for the UK economy that the funds are positioned for.
While he believes the government’s target to build 300,000 a year is too ambitious, Woodford argues £10bn for Help-to-Buy and abolition of stamp duty for first-time buyers on up to £300,000 of their property is supportive for housebuilders.
“I believe Hammond has delivered a politically shrewd and economically appropriate Budget,” he says.