The celebrated fund manager has cast doubts on OBR assumptions of real GDP growth of 2.3-2.4% per annum over the next five years, with inflation assumed to return to over 2% by the end of this period, meaning nominal growth of 5% by 2019-20.
“You don’t have to flex these assumptions very much at all, to get a glimpse of a much more difficult fiscal environment,” he said.
“What if growth fails to remain at these levels? What if inflation fails to return to the Bank of England’s 2% target? In our view, these are both realistic concerns…..Between 2010 and 2014, the average real GDP growth delivered by the UK economy was 1.8% per annum.”
Woodford also said he sees no reason to expect inflation to return to 2% per annum any time soon and he has incorporated 1% per annum into his own assumptions.
He added: “In doing so, we can see that, although the deficit continues to reduce, it does not do so at the same pace, nor does it end with a budget surplus by 2018-19. Indeed, this more realistic scenario results in a cumulative hole of over £120bn in the UK’s public finances.”
Renowned for his prudent investment approach, Woodford concluded there is no room for complacency on the UK economy: “There was nothing in the Budget to warrant a change to this cautious view in the near-to-medium term”.
Earlier this month, Woodford expressed his bearish view on the global economy with a lack of growth and deflation being main concerns.