Top U.K. fund manager Neil Woodford remains cautious about the global economy, and says he expects a prolonged period of stagflation.

“As we have gone through 2012, it has become clear that the economic headwinds have increased in strength rather than receded — the eurozone crisis has rolled on and become more intense while the US economy, which grew rapidly throughout the winter, has slowed through the spring and into the summer,” Woodford recently wrote in a note to clients, according to FE Trustnet.

Woodford says growth will be hard to come by. “Our strategy for the fund remains unchanged — we continue to focus the portfolio on what we believe to be fundamentally cheap companies, many of which are termed as blue chip or the ‘new sovereigns’, and where we believe valuations continue to underestimate their ability to grow through a prolonged period of economic stagnation,” he said. Woodford also talks about the outlook for two of his top holdings, Vodafone and Imperial Tobacco.