UK equity manager Neil Woodford has downplayed the chances and impact of Britain leaving the European Union without a trade deal.
The report by Woodford Investment Management and Capital Economics concluded the most likely scenario is a compromise deal with the EU which involves leaving the single market and customs union in 2019 but securing transitional arrangements while a free trade agreement is reached.
In this scenario, which the report says there is a 50 per cent chance of occurring, GDP growth will be “somewhat weaker” than trend during the transitional period but the UK economy will perform well over the next decade or so.
The expected net position by 2027 is a modest GDP gain of 1.1 per cent against the status quo, according to the report.
Mitchell Fraser-Jones, Woodford’s head of investment communications, said: “Broadly speaking, we agree with many aspects of the report and its key conclusions, and have found the report valuable, interesting and ultimately, from the perspective of our investment strategy, very reassuring.
“It reinforces our confidence that the portfolios are positioned appropriately for the long-term outcomes that are forecast.”
He predicted that a deal with the EU would be struck “in the coming months”.
The report, called Where are we now?, gives a probability of 35 per cent to a no-deal scenario, where Britain leaves the EU without reaching an agreement in 2019.
In this scenario the report predicts there will not be a major slowdown or recession but expects “some economic dislocation” in 2019 and that growth would dip under 1 per cent.
The report said: “Although there has been some recent slowing in economic growth as rising inflation has cut the growth in households’ real incomes, this should prove transitory.
“There are several factors that should support growth in the near term.”
These included a modest easing of austerity, the fact firms’ investment intentions have held up well and exports benefitting from the depreciation of the pound.
The report also pointed out that Britain has faced "protracted" political uncertainty since the 2010 general election and the EU referendum which does not appear to have affected economic growth.
Today's (9 November) report follows one which was published last year before the referendum.
damian.fantato@ft.com
