Invesco Perpetual fund manager Neil Woodford has warned there is a high probability of the UK losing its AAA credit rating if the Government does not address the budget deficit.
Speaking in a web conference for investors last week, Woodford said a downgrade by the rating agencies could have serious consequences, including downward pressure on sterling. He said: “A downgrade is more likely now than it has ever been, at least since we went cap in hand to the International Monetary Fund in 1976. There is a decent chance that we will be downgraded and this is a near certainty if we do not deal with the deficit.”
He said Britain has to “take its medicine” to avert a downgrade. “The consequences would be pretty tough as we would end up paying more for our borrowing, and there is the external perception of the economy.”
Woodford defended his funds’ performance in 2009.
He said: “I am confident we have the right strategy. We do not have the right ingredients for a sustainable economic recovery. We are in a period of economic stabilisation. We will not get a V-shaped recovery but we will not fall off a cliff.”
He said he expected to see dividend growth of 10 per cent this year. “The yield on the fund is currently 4.2 per cent, which is over 20 per cent higher than the yield on the stockmarket. I expect dividends to grow by upwards of 10 per cent this year.”