UK ‘freedom day’ arrives as investor confidence drops 5 percent

Investor confidence in the UK has fallen 5 percent in July, despite the country returning to ‘normal’ in what has been dubbed ‘freedom day’.

As Covid-19 rates rocket, however, Hargreaves Lansdown notes that the easing of restrictions is likely having a negative impact on UK sentiment. ‘Far from bringing an added dose of confidence to investors, ‘freedom day’ appears to be a setback,’ says Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, in a statement accompanying the findings.

‘The sharply rising Covid-19 infection rates across the country and concerns about fresh easing of restrictions are likely to be behind the drop. Worries are mounting about what the lifting of social distancing rules will mean for economic recovery, if the virus spreads more rapidly. Already many industries from hospitality to manufacturing are struggling to cope with high levels of absence as staff are pinged by the [National Health Service (NHS)] test and trace app, leading to the closure of some venues and a drop in output.’

Streeter also points to continued confusion around the UK’s testing and quarantine requirements for those hoping to travel abroad this summer. For example, travelers arriving from France who have been fully vaccinated by the NHS were expecting the need to quarantine to end at 4.00 am today – in line with the newly relaxed rules. But the government has announced that arrivals from France will still be required to quarantine at home for 10 days in what the papers are calling ‘amber plus’ rules for France – a reference to the green, amber and red quarantine traffic light system in place in the UK.

The ‘lack of warning’ about that change ‘has thrown holiday plans into fresh mass chaos, with hopes of a boost to summer bookings evaporating… leading to fresh uncertainty about the prospects for the aviation and tourism industries, which have been struggling through the worst crisis in their history,’ notes Streeter.

It’s not all down to Covid-19 restrictions easing, however. The investor sentiment survey also points to a growing concern among investors that rising inflation could be here to stay. Sixty-five percent of investors believe UK interest rates will be higher in a year’s time – the highest level since January 2019.

‘Economies have been reopening with an energy that once seemed unlikely in the depths of the pandemic, which is pushing up inflation,’ explains Streeter. ‘In addition, the recession left supply chains broken around the world, leading to some shortages. Companies have also slashed investment during the crisis, so the ability to increase production is limited, which has the effect of pushing up prices even further.

‘Central banks are largely still talking as a team, stressing that these effects are transitory, kicking the ball of monetary easing down the pitch. But it’s clear that investors, watching from the sidelines, are increasingly nervous that price rises are likely to linger for longer. More fear that a swifter rolling back of mass stimulus programs and the specter of rising interest rates could dampen economic growth and asset valuations.’

The UK’s 5 percent drop in confidence is the highest of any region in the survey, with only Asia Pacific seeing a positive boost of 2 percent on June 2021. Though both saw a hit to investor confidence levels, North America and Europe stand at only a 1 percent drop each, according to the regular survey of 6,000 Hargreaves Lansdown customers. The firm notes that, on average, around 10 percent of customers contacted respond to the survey.