Investor confidence in UK stocks at lowest since Dec 2008

Investor sentiment in Britain's stock market has fallen to its lowest level since December 2008, as worries about high inflation and market volatility grow.

The latest Lloyds TSB Private Banking survey found that the main reason for the drop was fear about the impact of inflation on equity markets, with 44% of respondents citing such a concern.

Another major reason for confidence ebbing was volatility created by turmoil in financial markets, with 42% saying this was their main worry.

‘Investors have been shaken by six months of negative news flow, declining stock prices and question marks about the pace and trajectory of economic recovery,’ said Ash Misra, head of investment strategy at Lloyds TSB Private Banking.

‘Their worries about inflation, natural and man-made catastrophes in Japan and an ongoing lack of political leadership to satisfactorily address US and euro zone debt issues are all conspiring against them,’ Misra added.

Only 25% of investors felt confident in stock market over the next year. The FTSE 100 has lost 11% this year, but faring better than other major European indexes, such as Germany's DAX which is down 19%.

Misra explained that while the current extreme pessimism in market is understandably overwhelming, there were positives and falling commodity prices should lower inflation threats and increase profit margins for companies.

He did not think this was the start of a new bear market and said the monetary policy outlook remained benign and accommodative for investors.