The UK economy will continue on the same positive trajectory in 2019 even with a no deal Brexit, Neil Woodford has claimed.
Mr Woodford, who has been an outlier among UK equity investors since the referendum vote in 2016, has taken the opportunity to buy shares of companies that have fallen in value as a result of the market’s fears about possible Brexit consequences.
His strategy has to some extent been correct in relation to the economic impact, with the recession forecast after 2016 not materialising.
But the performance of his funds has been painful for investors. From June 24 2016, the day after the referendum vote, to today (December 4), his equity income fund has lost 2 per cent for investors, while the market as a whole has gained 24 per cent.
Data provided by FE Analytics
Woodford Investment Management takes the view Brexit will be similar to the Millennium Bug, when the world worried about the impact on technology of the calendar turning to a new millennium in 2000, and nothing happened.
In his latest update to investors Mr Woodford said: "As we head towards 2019, we are confident that the individual constituent parts of the UK economy will continue to deal with the prospect of Brexit in the same way that they have been doing since the referendum in June 2016.
"Our UK thesis continues to be based around more people in work, with faster real wage growth, more spending from government, a pick-up in investment and benign credit conditions. Banks will continue to grow lending and, in particular, the growth in the housing market will continue with more housing transactions, more mortgage approvals (for house purchase rather than buy-to-let) and gently rising prices.
"Monetary policy should remain supportive, with low interest rates, because inflation will continue to fall."
Mr Woodford believes global growth is being powered by a Chinese debt bubble, and when that bubble erodes, the impact will be deflation and much slower global growth.
This will lead to global stock markets falling but those shares focused on the UK economy are already cheap and so will perform better.
David Marchant, chief investment officer at Canada Life Investments, said he would expect inflation to rise and economic growth to be slower in the event of a Brexit that does not involve a deal.
Rupert Thomson, head of research at KW Wealth, said: "The danger and reality of a sizeable hit to the economy, along with a significant risk that a 'no-deal' would trigger a general election and possibly a Corbyn-led Labour government, would very likely lead to a further significant sell off in UK markets even though the pound and UK equities are already trading at cheap levels."
He added: "Domestic focused and mid/small cap UK stocks would very likely suffer more than the FTSE 100 because their earnings would be more exposed to the domestic economic disruption than the FTSE 100 and will receive less benefit from a fall in the pound.