After a difficult 2022, asset managers and platforms had been counting on business picking up in 2023. As it’s home to the ISA season, the first quarter of the year is usually the bellwether for the year ahead — a good Q1 usually means a good year and vice versa. But as the chart below shows, Q1 got off to a sluggish start with quarterly gross and net flows down on Q122 and Q422 alike.
A sudden flowering of optimism
Why was business so poor in Q123? Several factors combined to create the perfect storm — rapidly rising interest rates, stubbornly high inflation, the ongoing cost-of-living crisis, a wave of public sector strikes and geopolitical uncertainty — all of which had a major impact on investor sentiment.
The good news is that business began to improve in the last month of the quarter and platforms are reporting that the worst is behind them; business is starting to flow again. That’s because recent economic news and forecasts have been better than expected.
As a result, the UK’s GfK Consumer Confidence indicator rose to -30 in April 2023 from -36 the previous month, its highest level since February 2022 and above consensus expectations of -35, because Britons took a more positive view of their finances and the health of the wider economy. GfK described it as a “sudden flowering of optimism among households”.
The rest of the year could in fact be better than the Q1 numbers suggest.