Financial advisors have grown gloomier about the UK economic outlook, with confidence in the third quarter of 2011 dropping five per cent from the previous three months to a score of 5.1 out of a possible maximum of 10, the Skandia Adviser Confidence Barometer shows.  

Advisors predict that the FTSE 100 Index of blue-chip shares will end the year at 5,578, an 11 per cent fall from 6,290 in the last quarter.

The biggest threat to the UK economy is European debt according to 46.9 per cent of respondents. US debt is the next biggest threat (13.5 per cent), with government spending cuts being the third biggest “threat” (10.5 per cent).

The survey was based on 876 responses to questions on 16 September, a time coinciding with rising fears that the eurozone – a key export market for the UK – could be hit by possible default by Greece.

Among other findings, the research showed that opinions on inflation risks remain divided, with slightly more advisors believing inflation will decrease over the next year (37.2 per cent) rather than increase (32 per cent), whereas last quarter more advisors believed inflation would increase (38 per cent).

More than 50 per cent of advisors now believe the official Bank of England interest rate will stay as it is at 0.5 per cent. In the previous quarter, only 14 per cent believed it would remain unchanged, with 84 per cent of advisors believing interest rates would rise.