Saving and Investing during economic disruption

Posted by Liz Rees in Portfolio management category on 24 Mar 17

Last year, the world awaited Britain’s vote on its membership of the EU and the result of the presidential election. Now, with the outcome of both of these questions settled, the FTSE 100 has set an all-time high, as Chancellor Philip Hammond announced a better than expected economic forecast for 2017.1

But what does this mean to UK savers and investors like you? How confident are you feeling about the UK’s economic outlook? Has your financial situation improved or worsened in the past year? We commissioned a leading online research firm to unearth answers to these questions – and here’s what we found:

  • In a reversal of last year’s trend, 20% of respondents say their financial situation has improved, while 26% say it has worsened. This is connected to the fact that 29% feel less confident about the UK’s economic outlook compared to a year ago.
  • An increase in inflation (39%), the weakness of the pound (36%) and the UK’s exit from the EU (36%) are cited as the three biggest threats to our personal finances.
  • Pessimism about future financial stability is resulting in a strong appetite to save, but this is failing to convert into actual savings, with only 1 in 5 saying they will put more money away this year.

The economy is proving resilient, but savers and investors feel worse off 

To say it’s been a momentous year for the markets is an understatement. Economic growth has proved remarkably resilient in the UK and shows signs of accelerating in several leading economies. Yet the prospect of higher inflation and a falling pound is clearly weighing heavily on personal finances.

Saving and Investing

Saving and Investing

While events such as the EU referendum and the US presidential election produced a tranche of speculation about how different outcomes would affect the UK and global economy, we saw very little on how they would impact individuals’ finances – an imbalance we believe needs correcting. A lack of confidence about the future may drive people to keep their money in a ‘safe’ place (a savings account, for example), but such a decision is at odds with the widely-held view of experts that equities can provide a superior hedge against inflation.

Our research also found that men are more positive than women about the UK’s economic outlook, with 35% of men saying they feel more confident now than they did a year ago, compared to 22% of women. 

Saving and Investing

When we look at the results by region, London is particularly gloomy about the UK’s economic future, with a significantly higher than average (34%) number of people saying they feel less confident now than they did 12 months ago. A Remain stronghold, it’s unsurprising to learn that the UK’s exit from the EU is seen by Londoners as the biggest threat to their finances (41%) – 5% above the UK average.

Scotland is also very unconfident, again with Brexit posing the greatest concern.

Uncertain economic conditions are creating a nation of frustrated savers

More than two thirds of Brits would save more money if they could. Problem is, only 1 in 5 of us feel able to do so. Rather than being a nation of frivolous spenders, we’re actually a nation of frustrated savers. This follows the news that the Office for National Statistics savings ratio dropped to 5.6 in the third quarter of 2016.2

Saving and Investing

Saving and Investing

With the rising cost of living and the squeeze on pay set against broader economic uncertainty, it’s unsurprising that many people feel they are unable to save. But as we live longer, fuller lives, it’s vital that we adopt the discipline of regular saving, however small. A pick-up in inflation may mean that people consider an alternative home for their savings – away from cash options and towards investment in stocks and shares. A well-diversified portfolio could help make long-term goals a reality.

Opinium Research conducted an online survey between 14th and 22nd February 2017, among 2,299 UK adults aged 18+. Results have been weighted to nationally representative criteria. 

1 Revised from 1.4% to 2% for 2017 by The Office for Budget Responsibility

2 ONS Revisions Triangles for UK households' saving ratio