Britons selling investments as the cost of living rises

The cost of living crisis is pushing clients to withdraw money to cover essential bills, advisers say

 man sitting working from home in a red puffer coat, scarf and wooly hat
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Britons are withdrawing money invested to cover essential bills as the cost of living crisis continues to squeeze UK households.

Almost half of financial advisers (46%) noticed clients withdrawing more funds to cover essential bills and address immediate income shortfalls, according to a recent survey by AKG sponsored by Standard Life.

Meanwhile, some 35% of advisers have seen clients deviating from previously set plans as they reassess their approach amid a gloomier outlook for the UK economy.

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“The economic backdrop is having a stark impact on people’s finances, causing many to reassess their plans. There’s a lot to contend with – from sky high mortgages, rising interest on debts and ever changes tax rules – and it’s important to factor all of this into financial planning.

“In this increasingly complex environment, financial advisers have a crucial role to play in navigating their clients through it all and helping them withstand the turbulence as best possible. This will give peace of mind to clients, as well as hopefully help them weather the financial storm,” Chris Hudson, retail advised managing director at Standard Life, says.

Investors cautious in the face of a gloomy outlook

Clients are becoming increasingly cautious, with over a third of advisers (36%) saying that clients are taking out money to establish ‘rainy day funds.’ Economic uncertainty and the strain of the last few years are prompting Britons to plan and save more against emergencies and financial shocks.

Matt Ward, communications director at AKG, adds: “We simply cannot get away from the conversation about the seismic impact of the past few years on UK consumers, nor should we. What has been experienced needs to be acknowledged and understood by the financial services industry so that a positive future can be built upon from here.”

The uncertainty in the economic landscape has influenced investment decisions as well, with three in 10 (29%) advisers seeing clients choosing to shift their investments towards lower-risk options to mitigate potential market volatility.

The impact of the pandemic and the subsequent cost of living crisis on client behaviour is also leaving some Britons lacking the motivation to tackle their finances. 

“Through our conversations with customers we know that people feeling low or depressed tend to lack motivation to manage their money. Many tell us they no longer feel like trying to plan for the future. Often, people struggling with their mental health make impulsive decisions, and short-term worries can overwhelm the need to take a longer-term view,” says Riffat Tufail, head of Customer Vulnerability at Standard Life.

Making poor financial decisions

Still, over half of respondents (55%) didn’t feel they had made poor financial decisions in the past two years.

However, one-third of those responding to this question did feel they had made poor financial decisions in the past two years. 13% felt they had made poor decisions on savings. 10% on debt matters, 8% on investments, 7% on their pension, 6% on other financial services policies like insurance and 4% on their mortgage.

In the face of inflation, almost one in three (29%) Britons says that they are anxious about money matters at present, but are taking steps to manage finances through the rising cost of living. Some 17% are also anxious but recognise they could do with some support.

Millions miss payments amid cost-of-living

A separate report by consumer body Which? reveals that an estimated 2.3 million UK households said they missed or defaulted on a vital payment – such as a mortgage, rent, credit card or bill payment – in the last month.

Six in ten (59%) people made at least one financial adjustment – such as cutting back on essentials, selling items or dipping into savings – in the last month to cover essential spending. This equals an estimated 16.5 million households.

According to the National Institute of Economic and Social Research (NIESR), Britain is on course to suffer five years of lost economic growth, the longest since the aftermath of the global financial crisis.

"Despite continuing to expect the UK to steer clear of a recession in 2023, GDP is projected to grow barely by 0.4% this year and by 0.3 % in 2024, with the outlook remaining highly uncertain," NIESR said.

"There are, in fact, even chances that GDP growth will contract by the end of 2023 and a roughly 60% risk of a recession at the end of 2024."

GDP is currently 0.5% below the level it was at before the Covid pandemic struck.

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Pedro Gonçalves

Pedro Gonçalves is a finance reporter with experience covering investment, banks, fintech and wealth management. He has previously worked for Yahoo Finance UK, Investment Week, and national news publications in Portugal.