Flat markets, high inflation and a challenging property market mean more HNWs are losing confidence in the economy.
UK millionaires’ confidence has taken an unexpected dip after steady growth for over a year, according to the latest data from MillionaireVue, our omnibus of high-net-worth individuals.
Since the start of the Ukraine-Russia war in early 2022, HNWs have gradually been increasing in confidence. But with persistently high inflation (though now falling), higher interest rates, disappointing equity markets, and discounting in the property market, HNWs are now becoming jaded about the economy.
Confidence in personal savings and investments has continued to stay high but flat. With HNWs now chasing savings rates and challenging wealth managers to continue to at least preserve the value of their capital against inflation, confidence in meeting their financial goals has stuttered. Alternative strategies are now being employed to combat this. And we’ve noted many HNWs making withdrawals from investment accounts and moving into cash for guaranteed fixed rates that are just that bit more reliable than volatile markets.
Market performance weighs on confidence
In Q3 2023, the FTSE 250 has continued to plod along below Q1 and Q2 2023 levels. So having withstood the declines through 2022, the cautious Q1 2023 recovery in equity prices that drove steady confidence building has collapsed.
This has particularly affected the 55 and older wealthy investors who rely on their portfolios for income in retirement and as a source of capital for large expenditure. They are almost twice as likely as their under 35 peers to consider equity market volatility a significant risk.
But it’s continuing high inflation damages outlook
Though inflation is well down on the high of October 2022, at 6.3% in August 2023 it remains well above the 2.5% average since 1993. As such, 1 in 2 UK millionaires still reference inflation as an investment risk.
The youngest HNWs are the most likely to feel this effect, with 60% of under 35s seeing inflation as damaging their investment prospects. Given this is typically a higher spending audience this isn’t surprising but it’s still a worry to 1 in 2 55 and overs too.
Getting under control
However, inflation is coming down, and with cash savings rates being their best in years many UK HNWs could feel more confident in the run-up to Christmas. But if the feel good festive season doesn’t set in soon, luxury brands may be disappointed by the celebratory spend of their most valued clients. In the meantime, wealth managers would do well to be proactive with communication to clients to head of more clients moving money out of portfolios and into high street cash deposits.