Recession has emerged as the leading concern for UK retail investors, ahead of inflation, according to investment platform eToro.
In a study of 1,000 UK-based retail investors, more than a fifth (22%) said the state of the economy and the threat of a recession poses the biggest risk to their investments over the next 12 months, while 20% said inflation remains their biggest concern. The findings are a reversal from three months ago when inflation posed the biggest worry (22%), with recession fears coming in second (19%).
eToro said the number of UK investors who feel confident about the UK economy has also dropped 4% to 33% over the last six months.
Despite this, investor confidence in the markets has risen, with more than three quarters (76%) stating they feel confident about the outlook for their investments, up from 69% in the second quarter. Investors are also feeling more positive about their living standards and job security.
Ben Laidler, markets strategist at eToro Global Markets, said: “There is a growing sense that the Bank of England’s tightening is having the desired effect in taming price increases, meaning that inflation is no longer the worry it was for investors just a few months ago. At the same time, there is concern that the tightening we’ve seen so far could tip the UK into a recession. While that is far from a foregone conclusion, given how resilient the economy has been over the past 12 months, it’s clear it is playing on investor’s minds.
“While investors’ chief concern may have shifted, they are far happier with the prospects for their investments than they were a few months ago. That could be for any number of reasons, but one assumes that UK investors feel their portfolios are sufficiently diverse, across asset classes and geographies, to weather a potential recession here at home.”
Nearly a third (28%) of investors are planning to increase their contributions in the coming three months, according to eToro, with technology (13%) and finance (13%) the most popular sectors, while online retail and cars (2%) and industrial stocks (2%) were the least favoured.
Laidler added: “Tech has come back with a vengeance in 2023 and is once again in focus for UK investors as the strongest performing sector of the year, with AI stocks doing a lot of the heavy lifting. Unsurprisingly, given the recession risks, consumer discretionary goods come bottom of the list for investors at the moment. But they are not afraid of being contrarian, with a significant focus on real estate and utilities sectors, recent underperformers that would do well with any early cutting of interest rates.”
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