Fund manager warns of sluggish demand

Top fund manager Neil Woodford has warned that the UK economic outlook remains challenging as the government's spending cuts threaten to undermine private-sector demand.

Woodford, manager of the Invesco Perpetual income funds, was speaking as he reported steady growth in the Edinburgh Investment Trust over its first half. The trust's net asset value grew by 3.7 per cent in the six months to the end of September, while its share price rose by 5.2 per cent to 417p. Its benchmark index, the FTSE All Share, fell 1.5 per cent over the same period.

But Woodford, who took on the Edinburgh trust in 2008, warned investors that the economic recovery would remain sluggish.

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"The UK has seen a muted recovery so far despite the scale of monetary and fiscal support it has received and with the process of bank crisis resolution still far from over we expect growth to be minimal in the years ahead," he said.

"The combination of consumers and banks de-leveraging is restricting growth and the outlook for 2011 will be further challenged by fiscal consolidation."

Woodford argued that a combination of spending cuts and rising unemployment would expose the "underlying weakness" of private-sector demand. "We expect there to be a lack of pricing pressure in the economy that will see inflation gradually retreat, despite the one-off impact of next year's VAT rise," he added.