Brexit damages UK investor confidence.

Political and economic uncertainty due to Brexit has driven investor confidence to an all-time record low in 2017 according to research published by Hargreaves Lansdown.  Confidence averaged 76 in 2017, one point lower than surveyed in 2008 during the peak of the financial crisis.

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The report states that investor sentiment for 2017 was worse than at any time since 1995, "including the tech crash, the Enron scandal, the second Gulf War, and the financial crisis."

"Investor confidence is pretty low, largely because the UK faces a changeable political and economic situation, as a result of Brexit and the 2017 general election, while the financial crisis still casts a long shadow over proceedings," according to Hargraves Lansdown’s senior analyst Laith Khalaf.

Confidence in December dropped to 67 from November's figure of 77.  Given 2016's average was also a low of 78, the report said, we are now in a "prolonged period of extremely poor sentiment amongst investors."

According to the report, June’s election led to a "fragile government, and the ongoing prospect of another election being called at the drop of a hat" — diminished confidence further. While the average reading for 2017 prior to June's election was 83, this has since fallen to 74.

A survey by the Bank of England last month disclosed the biggest perceived risk to the UK's financial system was the UK's political system. Weakening confidence was also driven by the fact that "social media has given voice to as many worrying statistics as you'd care to come up with," said the report, as well as the long shadow cast by the financial crisis.

In the wake of low confidence, said Khalaf, investors are "fleeing UK equities in droves," with £2.2 billion withdrawn from UK equity funds in the ten months to October.

Although the Brexit referendum "destabilised British politics," said Khalaf, he cautioned that full effects "will not be known for many years" and that investors should not "get hypnotized into paralysis by the swinging pendulum of the Brexit negotiations.”

Despite poor investor confidence, the FTSE 100 repeatedly hit record highs in 2017. According to Khalif, this has been widely attributed to a "weak currency and cheap money" since the Brexit vote. There is little sign that investor confidence is going to improve in the near future.

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Dr. Ray NultyComment