Investor confidence dropped on capital gains tax and pension Budget fears

The Hargreaves Lansdown investor confidence index dropped more than 11 per cent over the last month as fears of the Budget spread throughout UK investors.

Confidence among investors has been on a downward trend for some time, with a similar sized fall happening the month before.

“The looming budget in the UK, due to be delivered just one day before Halloween, seems to have spooked investors, with many worrying about cuts to the capital gains tax (CGT) allowance, rises in the CGT rates and potential pension reforms,” said Victoria Hasler, head of fund research at Hargreaves Lansdown.

Fears over the contents of the Budget have also spilled into confidence in UK economic growth, which tumbled almost 20 per cent as investors fear that the new government’s plans to grow the economy may not be as strong as promised.

“It would seem that investors’ initial enthusiasm for the potential stability of a new government has waned, and they now have less faith in the new government’s ability to grow the economy, at least until they have seen the details of the upcoming Budget,” Hasler added.

The only area of the world where confidence grew was Japan, with investor positivity rising 7.2 per cent. However, this came following a sharp September dip, as investors reacted to ongoing market volatility in the country.

Confidence fell very slightly for North American stocks, despite the significant uncertainty over the US presidential election, likely due to the continued strength of big tech names like the Magnificent Seven.

Hargreaves Lansdown’s sentiment market index, which tracks how likely people are to invest compared to the previous month, saw a similar fall, though there was an uptick in investor likelihood of buying passive funds.

“This may have something to do with the struggle that active managers have had to outperform in the US given the outsize influence of the big tech names on index performance,” said Hasler.