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Investor confidence falls sharply in July

The Hargreaves Lansdown Investor Confidence Index fell sharply in July, as investor sentiment adjusted to the new political situation in the UK and the commencement of Brexit negotiations.

The index fell 20%, from 86 points last month to 69 points in the latest reading. The long term average level for the index is 99, and the lowest level since the index was launched in 1995 is 59, which was recorded in November 2016.

Meanwhile expectations of an interest rate rise have increased significantly. 44% of investors now think that there will be an interest rate rise in the next 6 months, up from 16% in June. 81% of investors think there will be an interest rate rise within 12 months, up from 54% in June.

Laith Khalaf, Senior Analyst, Hargreaves Lansdown:

‘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.

There is a silver lining to the cloud currently casting a shadow over investor confidence, because it suggests markets are not being driven by reckless abandon, and that there is scope for improving sentiment to have a positive effect on stock prices.

Investors are also keeping a keen eye on proceedings at the Bank of England, and are increasingly confident of a rate rise following the split MPC vote in June. The market is in agreement, pricing in a 50% chance of a rate rise by the end of this year.

However 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% 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 £33.3 billion 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.’