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UK investors brace for recession before the end of the year

UK investors are bracing for a recession before the end of the year, new research has found.

The trading broker HYCM commissioned an independent survey of UK-based investors, all of whom have investments in excess of £10,000, excluding the value of their residential property and workplace pensions.

It found that the majority believe the UK will be plunged into a recession before the year’s end, despite the outcome of the ongoing Conservative party leadership contest.

With economic policy a divisive factor between candidates, investors showed a slight preference for Rishi Sunak as Prime Minister, compared to 33% of those who showed no preference and 31% who favour Liz Truss for the role.

In the current high inflation, low growth economy, half showed their concern that the Bank of England’s interest rate hiking cycle will not be enough to stamp out soaring inflation in the coming months, posing the biggest threat to their financial portfolio.

A further 45% expressed their alarm over the prospect that interest rate hikes will dampen economic growth, which they predict will trigger a recession in the next 12 months. That said, 27% of forex investors are looking to increase their FX investment over the next 12 months, as central banks hike their base rates at different paces.

Elsewhere, in the current economic climate, more than half describe themselves as ‘risk averse’. Meanwhile 38% said that safe haven assets were their prime focus in the current investment landscape.

When asked about their investment strategy for the rest of the year, 33% of crypto investors plan to decrease their investment, up from just 11% in Q1. However, it is also noteworthy that 27% of crypto investors are planning to increase their crypto holdings. This mixed picture perhaps reflects the growing acceptance of crypto as an asset for the medium to longer term.

Meanwhile 44% and 35% of investors plan to reduce their holdings in classic cars and private equity, up from 14% and 11% in Q1, respectively.

On the contrary, stocks and shares were the most popular asset class amongst those surveyed, with 19% overall planning to invest in this asset within next 12 months, with property, social and impact investments and gold following closely behind.

Giles Coghlan, Chief Currency Analyst, HYCM, said: “With the Conservative leadership contest gaining momentum, all eyes are falling firmly on economic policy in the bid for the prime minister role. As Sunak warns that the lights are flashing red on the economy and urgent action must be taken to tame spiralling inflation, Truss and her backers are casting doubt on current thinking from the Bank of England (BoE). Whatever course is taken, our research shows that investors clearly view a recession as inevitable.

“Heeding warnings of a five-quarter economic decline, our findings suggest that investors are not only acutely aware of the prolonged impact of the current economic crisis, but they are also questioning the BoE’s mandate on inflation and adapting their portfolios for a difficult road ahead. As the cost-of-living crisis continues to bite, it is therefore unsurprising to see many investors reducing their holdings in some riskier and more speculative assets in favour of those that characteristically provide a safe haven in times of uncertainty.

“However, given that 19% of investors overall plan to invest in stocks and shares and interest in forex remains high it is important to acknowledge that, although subdued, risk appetite is not entirely dead.”

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