Invesco Perpetual income guru Neil Woodford has warned that the chances of a double-dip recession in the UK are on the rise.
Woodford says that the possibility of two quarters of negative GDP is being directed by the increasing likelihood of more fiscal consolidation and larger budget deficits.
Woodford says his expectations of a slow market recovery have not changed.
He says: “As I have said before, I do not see this as a V-shaped recovery as it is not a normal recession. This recession has been induced by the banking crisis and it will take time – it usually takes five to six years on average. The challenge in 2011 will be fiscal consolidation in the UK, Europe and the US.”
Woodford also warned that house prices could also fall significantly, claiming a fall of between 5 and 10 per cent per annum for the next three years is possible.
He says: “There has been a lag in the UK, but we are starting to see some weakness as there will be much more supply as people look to cash in.”
Woodford says that it is deflation, as opposed to inflation, that is his biggest concern in the UK at the moment. He highlights the impact of VAT increases and a lack of pricing pressure as contributors to this concern.
He also says that Basel III will not impact his holding in banks, claiming the directive has been “deferred and diluted” as banks continue to rebuild their balance sheets.
He says: “I don’t think there will be a Basel IV but this directive gives the impression that banks are still in a mess – more so in Europe than the UK or the US – and this is almost an acceptance that the banks are still too weak.”
Woodford says that he does not need a double-dip recession to outperform and that his holdings in the likes of utilities, pharmaceuticals and tobaccos will bear fruit.
He says: “AstraZeneca for example is so profoundly undervalued as is much of the pharmaceuticals sector.
“Tobacco and utilities are also more than just defensive stocks. What we are seeing in the UK is a pool of stocks that are hugely underpriced and from that perspective there are more than enough opportunities.”