Investor confidence has plummeted despite the soaring stock market, research from Hargreaves Lansdown shows.
The Hargreaves Lansdown investor confidence index fell 20 per cent in July, down from 86 points in June to 69 points. The long-term average level for the index is 99 while the lowest level since the index was launched in 1995 is 59, which was recorded in November 2016.
Investors have changed their tune on an imminent interest rate rise, with 44 per cent of investors predicting a rate rise in the next 6 months, up from 16 per cent in June. Meanwhile 81 per cent of investors say there will be a rate rise within 12 months, up from 54 per cent in June.
Laith Khalaf, senior analyst at Hargreaves Lansdown, says: “Investor confidence is scraping along pretty close to the bottom of the barrel right now, in stark contrast to the stock market, which is riding high.
“The UK currently finds itself in economic limbo, with the election of a limp Government and the start of the long and winding Brexit journey both creating a sense of suspense, which appears to have taken its toll on investor sentiment.”
However Khalaf adds that low investor confidence is not necessarily a negative, as it suggests the markets aren’t “being driven by reckless abandon” and when sentiment improves the market will benefit.
On investors’ interest rate rise expectations, Khalaf says the outlook could be unfounded, despite the market pricing in a 50 per cent chance of a rate rise by year end.
“This wouldn’t exactly be the first time a few hawkish comments raised expectations of a rate hike, only for disappointment to follow. It’s also important to maintain perspective, because a rate hike would only take us back to where we were at this time last year.
“That’s not going to materially improve conditions for cash savers, and with the Office for Budget Responsibility forecasting interest rates only rising to 1 per cent by 2022, it looks like the value of cash in the bank is going to fall in real terms for some considerable time yet. The latest Capita Dividend Monitor showing that UK companies paid out a record breaking £33.3bn in the second quarter of this year, so interest rates have a lot of catching up to do before cash starts looking like an attractive proposition.”