Neil Woodford on Budget 2016: “Politically astute but that’s all”

17th March 2016


Star manager of the CF Woodford Equity Income fund, Neil Woodford, gives his view on George Osborne’s latest Budget…

Budgets these days seem to be more about politics than economics and this one was no different. The outlook for the UK economy is neither better nor worse following yesterday’s Budget.

What we did learn is that the Office for Budget Responsibility (OBR) is slowly adjusting its excessively bullish outlook for the economy and as a result the deficit reduction headwinds look more challenging than they did in 2015.

We believe the OBR is still too bullish on growth and inflation – and so there will be more revisions to deficit reduction targets to come in the years ahead. In my view, this only matters to the UK economy to the extent that it subsequently leads to a more contractionary fiscal policy, which will not be good for growth.

Small businesses will benefit from some of the measures announced, as will the savings industry. On the other hand, the corporate sector as a whole, will be paying more tax despite the lower headline rate on profits coming down by a further 1%.

But given the Chancellor’s self-imposed limited room for manoeuvre, it will also not be a surprise to see that Government net investment will continue to fall, as it has done for some time now, despite the headline grabbing project announcements.

Overall, this was yet again an astute, political Budget filled with some eye catching initiatives but it will have little overall effect on the performance of the UK economy in the immediate future.

Where I would agree with the Chancellor is that global economic headwinds are intensifying and they will continue to exert a depressing effect on the performance of the economy from a growth and deflation perspective. Importantly, the Budget will not lead to any changes in the portfolio – they are already positioned for the more challenging economic world that the Chancellor is now beginning to acknowledge.

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