Chancellor Philip Hammond announced in his Budget speech yesterday (22 November) that GDP growth forecasts are being revised downwards for the years to 2020.
The UK is only expected to grow 1.5 per cent in 2017. This is versus a prediction of 2 per cent made only in March.
That compares with the pre-financial crisis average of 2.1 per cent per year.
The forecasts are from the independent economic body the Office for Budget Responsibility.
But Mr Woodford, who has for the past 18 months maintained a much more positive outlook for the UK economy than many of his peers, said he has no confidence in the OBR.
“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.
"Indeed, productivity actually went up in the last quarter so, although one data point doesn’t necessarily point to ongoing improvements, it is entirely plausible that the OBR has made this change at precisely the wrong time.”
Mr Woodford runs three funds open to UK advisers and their clients - the £8.4bn Woodford Equity Income Fund, the £724m Woodford Income Focus fund and the £906m Patient Capital Investment Trust.
The two equity income funds have substantial exposure to the UK economy, with holdings in UK retailers, banks and property companies that would be expected to do better if UK economic growth improves.
The OBR has been wrong with previous productivity forecasts, but those errors have been because the body had been too optimistic, rather than too pessimistic, with its forecasts.
However Mr Woodford now thinks the OBR has switched to a more pessimistic outlook at precisely the wrong time.
He added: “The OBR now appears to be forecasting a sustainable growth rate for the UK economy of {around} 1.5 per cent over its forecasting horizon. As well as the explicit caution in its assumptions around productivity, there is also appears to be some implicit caution around the impact of Brexit on the UK economy.
"My own belief is that the UK economy can do better than what has been forecast by the OBR – I expect UK economic growth to be in the region of 2 per cent per annum over the next three-to-five years.”
However Ed Smith, head of asset allocation research at Rathbones takes a different view.
He said: “The OBR’s estimates are now towards of the lower end of the range of estimates from other independent forecasters.
"However, we do not believe that their medium-term projection is particularly pessimistic.
"They estimate growth will stabilise at 1.6 per cent in 2023; coincidentally, our own projection of the UK’s potential GDP growth over the next 10 years is 1.6 per cent per annum. And our forecast does not include any adjustment for Brexit.”
He added: “Productivity growth is now expected to recover to 1.3 per cent a year by 2022-23. Previously they assumed it would return to the 2 per cent trend.”
Mr Smith said lower productivity growth is a “global phenomenon” and the UK is “not unique” in having productivity growth at lower than its historic averages.
David.Thorpe@ft.com
