Confidence in the UK economy has fallen by 10% in Q4 2011 with financial advisers giving it an average score of 4.58 out of 10 (10 being most confident) compared to 5.1 in Q3 2011 according to Skandia’s latest Adviser Confidence Barometer.
A staggering 70% of advisers believe the biggest threat to the UK economy is European Debt, which is up from 47% in Q3 2011. Unemployment ranks second highest, with one in ten votes, up from 7.8% in Q3 1011, and government spending cuts ranks third highest at 5.5%, down from 11% in 2011. US debt did rank second highest in Q3 with 14% of votes, but fears have now subsided, and only 3% of advisers consider it a main threat in the Q4 survey.
Some 60% of advisers think inflation will decrease over the next year, which is double the amount who believed it would decrease in Q3. Just 15% think it will increase. This is a strong shift in sentiment compared to Q3, where advisers were very much divided in their opinion.
Almost two thirds of advisers now believe interest rates will stay as they are at 0.5% during 2012. This is a large swing in opinion compared to just 6 months ago, when only 14% of advisers believed interest rates would stay as they are, with 84% believing they would rise.
In line with falling confidence, demand for safer assets is increasing. Despite advisers still believing emerging markets will offer the best potential for returns over the next 12 months the sector attracted 28% less votes compared to Q3, with just 24% of advisers ranking it number one in Q4. Global specialist (14%) remains the second most popular sector, but received 38% less votes compared to Q3. The big winners have been UK Fixed Interest (11.1%) which is up 55% compared to Q3, and two new sectors introduced in the Q4 survey, which are commodities (6.6%) and Gold (11.5%)
Peter Mann (pictured), chief executive at Skandia UK, says: “It certainly has been an interesting and turbulent year. Who would have predicted the unprecedented events witnessed across global markets, including the US debt crisis, EU debt crisis, and riots across Europe and at home. These events have all taken their toll on adviser confidence, and concern in Europe continues to be forefront in people’s minds.
“There has been much speculation around another global recession, and around another financial meltdown. Markets continue to behave erratically, with volatility reaching record highs.
“It is important in times like these that people ensure their investment portfolios are balanced and in line with their expectations. With inflation prevailing at 5.2%, and interest rates continuing at just 0.5%, it is difficult for people to obtain positive ‘real’ returns from cash savings accounts, so stock market investment will remain a valuable alternative over the long term.”
