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Woodford warning on growth

Invesco Perpetual income manager Neil Woodford believes Chancellor George Osborne is being too optimistic in his expectations for UK growth.

In his Budget speech, Osborne revealed that the Office of Budget Responsibility has downgraded the growth forecast for 2011/12 from 2.1 per cent to 1.7 per cent and from 2.6 to 2.5 per cent for 2012/13.

Speaking in an Invesco Perpetual webcast this week, Woodford said: “The challenge for the Government in the next two or three years will be tackling the Budget deficit. Doing so dep-ends on underlying growth in the UK economy and I do not see it coming through as the Chancellor has forecast.”

Woodford rejected predictions that interest rates will rise next month but claimed that even if bank rate does rise, inflation will not be affected. He said: “Most of the drivers for inflation are outside the control of the MPC, like tax increases, food and energy prices.”

He said energy prices will feel the primary affect of the earthquake and tsunami in Japan and the uprising in North Africa and the impact could be disinflationary.

But he predicted that Japan will recover quickly. He said: “The dip in production output in Q1 and Q2 this year will come back next year.”

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