The latest UK inflation reading published yesterday (Wednesday) showed a fall in the consumer price index (CPI) to its lowest level in more than a year. However, this is no consolation for retail traders.

The newest edition of the ‘UK Online Investing Report’ by Investment Trends reveals that nearly 44% of the UK's online investors are grappling with the impacts of escalating inflation and the cost of living. The report sheds light on various facets of the retail online investing scene in the UK, from long-term investors to frequent traders.

The State of Online Investing in the UK

The study indicates that around 2.66 million UK adults have unlisted funds or traded listed investments online. Active listed equities investors have remained fairly steady over the past year, with 1.23 million, which is a slight increase from 1.22 million in May 2022. This steady figure is largely due to the reactivation of previously dormant clients.

According to Lorenzo Vignati, the Associate Research Director at Investment Trends, the adoption of cash products like fixed deposits and high-yield savings accounts almost doubled in the past year. It reflects the global rise in interest rates.

“Nearly one in two online investors admit to feeling the brunt of higher inflation – with many reporting a drop in portfolio value and savings,” Vignati added.

Additionally, the UK is witnessing a growing trend of dependence on artificial intelligence (AI) for financial guidance, as revealed by the most recent edition of the annual Investor Index study. The survey highlights that 73% of investors in the UK place their trust in ChatGPT, an AI chatbot, to offer dependable financial advice in the coming years.

The Impact of High Fees and Changing Preferences

Tough market conditions and high fees have contributed to the stagnation of dormant online investors and have led to increased platform-switching activity. About 11% of online investors are likely to open a new account with a different platform over the next year.

In terms of investment holdings, it is estimated that 42% of total investments are held in stocks and shares ISAs, which is up from 39%, and 15% in (Self-Invested Personal Pensions) SIPPs and down from 18%. When it comes to confidence in investment decisions, particularly for SIPPs, pre-retirees report the highest levels, while Zoomers and Millennials exhibit the lowest levels of confidence.

“With a notable disparity in confidence to make investment decisions from one generation to the next, platforms have a key opportunity to review their engagement and support services and ensure they are meeting the needs of their investors across the entire user journey,” Vignati commented.

Low-Cost Platforms Gaining Popularity

Investment Trends' report also uncovers a shift from traditional investing platforms to lower-cost alternatives. As of May 2023, 61% of UK online investors are either using a disruptive commission-free or low-cost investing platform.

Pure-listed equities investors predominantly choose disruptive platforms, while low-cost platforms are gaining traction among those pursuing a mixed equities and funds strategy.

Investment Trends, a research firm in the wealth management industry across the UK and Australia, based this report on a survey of 13,386 online investors conducted between April and May 2023. In another recent study, the company reported that the United Arab Emirates' FX and CFDs traders population reached a record-breaking 49,000 in 2023.