UK investors brace for recession before the end of 2022, finds HYCM

Giles Coghlan, Chief Currency Analyst at HYCM

A new research study of 885 United Kingdom-based retail investors has revealed how investors are managing their portfolios in light of high inflation, low growth, subsequent recession risks and the Conservative leadership contest. UK investors are bracing for a recession before the end of the year, new study commissioned by HYCM has found.

What were the findings of the study?

The trading broker commissioned a survey of 885 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 62% 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, investors showed a slight preference for Rishi Sunak as Prime Minister (36%), compared to 33% of those who showed no preference and 31% who favour Liz Truss. In the current high inflation, low growth economy, half (50%) 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 (56%) describe themselves as ‘risk averse’. 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. It is also noteworthy that 27% of crypto investors are planning to increase their crypto holdings. This 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. Stocks and shares were the most popular asset class, with 19% overall planning to invest in this asset in next 12 months, with property (14%), social and impact investments (13%) and gold (12%) following closely.

What were the executive’s thoughts on the findings?

Giles Coghlan, Chief Currency Analyst, HYCM, said: “With the Conservative leadership contest gaining momentum, all eyes are falling firmly on economic policy. 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). 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 fully aware of the prolonged impact of the economic crisis, but they are 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.”

What were the research insights?

These were the additional findings:

  • The majority (62%) of investors believe the UK will enter a recession before the end of the year, irrespective of the outcome of the Tory leadership contest
  • Investors showed a slight preference for Rishi Sunak as PM (36%), compared to 31% who favoured Liz Truss and 33% who have no preference
  • 50% are concerned that interest rate hikes are not enough to tame inflation, posing the biggest threat to their portfolios
  • Investors plan to decrease their holdings in crypto (33%), classic cars (44%), private equity (35%) compared to Q1 figures
  • Stocks (19%) and gold (12%) are among the most popular asset classes to invest in overall