Woodford Investment Management  

Woodford predicts 2% UK GDP growth in 2018

Woodford predicts 2% UK GDP growth in 2018

The pace of UK economic growth will increase in 2018, while much of the rest of the world slows down, according to fund manager Neil Woodford.

Mr Woodford has been much more positive on the outlook for the UK economy than his peers, which has hit the performance of his £7bn Woodford Equity Income fund - the worst performer in its sector over the past year to date (6 March).

The fund manager has positioned his fund with investments in stocks focused on the UK domestic economy, such as UK housebuilders and Lloyds Banking Group.

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He said: "We believe that the market consensus has misread the outlook for the UK, where economic fundamentals are improving, not deteriorating.

"Looking forward, we see UK economic health improving, with more people in work, more wage growth, less inflation, more investment spending, better public finances and a continued recovery in manufacturing and exports.

"Indeed, we expect the UK economy to grow by around 2 per cent this year – that isn't a spectacular rate of growth but it is a considerably better outcome than the recession that some of the more pessimistic commentators are forecasting and what appears to be priced in to valuations.

"It will also compare very favourably with the apparently 'booming' European economy, which will probably be growing at approximately the same rate."

He said the global economy has been powered by a combination of liquidity being pumped into the system from low interest rates and quantitative easing in the US, and China's continued economic expansion, which he said has led to an unsustainable build up of debt in the economy. 

Mr Woodford expects both of those trends to dissipate this year, as policymakers in China focus more on the quality of the growth being generated, and less on the pace of growth.

He expects this to be negative for the rest of the world.

US interest rates rising would be expected to reduce the amount of liquidity in the global economy, which is negative for asset prices.

Mr Woodford's view that the UK's pace of economic growth can pick up even as the rest of the world slows down is in stark contrast to the view of Jim O'Neill, former government minister and chief economist at Goldman Sachs, who takes the view the improvement in global growth over the past year is the reason why predictions of recession in the UK, including from him, have not come to pass.

david.thorpe@ft.com