Investors Abandon Pound Ahead of Spring Statement

Institutional investors are rapidly divesting from the pound in the lead-up to Chancellor Rachel Reeves’s spring statement, set to unveil significant fiscal policy changes. The abrupt shift comes as investors panic over potential spending cuts of £15 billion aimed at adhering to the government’s commitment to achieve a budget surplus by 2030.

Data from Bank of America highlights that money managers have executed the fastest sell-off of the pound since 2023. This trend indicates a growing concern among investors regarding the volatility risks associated with the currency ahead of the chancellor’s announcement.

Analysts have reported that the ongoing sell-off is due in part to recent economic shocks impacting the UK. These include the long-term repercussions of Brexit, the Covid-19 pandemic, and the energy crisis ignited by Russia’s invasion of Ukraine. S&P Global has since revised its UK growth forecast for 2025 down from 1.5 per cent to just 0.8 per cent due to these factors.

The economic outlook remains bleak, with inflation pressures mounting and consumer confidence faltering. The potential for further spikes in inflation, coupled with a slowdown in the labour market, could stymie consumer recovery and investment.

The upcoming spring statement is expected to refocus market attention on the disappointing growth prospects for the UK economy, which are likely to be halved from anticipated figures earlier this year. The current “misery index”, which combines unemployment with inflation rates, indicates that the UK’s economic challenges outpace those of its G10 counterparts.

Despite these negative sentiments, there is speculation that the pound might rebound depending on the government’s fiscal strategies. Some analysts assert that the economic impact of new tariffs, introduced by President Trump, may spare the UK economy compared to its European peers.