UK Investors Shed Bonds Amid Tariff Turmoil And Uncertainty Over Rates

Investors in the United Kingdom have turned away from bonds at an unprecedented pace, with £1.2 billion pulled from fixed income funds in April. This marks the fastest rate of bond sell-offs since April 2020, when the initial shocks of the pandemic surged through financial markets. The downturn comes amid escalating concerns over global economic stability, driven by trade tensions and potential interest rate cuts in response to slowing growth.

Data from Calastone, a leading global funds network, highlights the extent of the market shift. Investors are retreating from bonds following a new wave of American tariffs announced on April 2, described by former President Trump as “liberation day”. These tariffs disrupted confidence in the US economy, pushing down the value of the dollar and leading to significant sell-offs in US and global bonds. Market pressure has mounted, with yields dropping across regions as questions over government finances grow louder.

This upheaval has caused investors to reconsider their positions within the financial markets. While bonds have seen substantial outflows, including a £700 million withdrawal in March, equity funds have experienced a surge in demand. Figures from Calastone reveal net inflows to North American and global equity funds reaching £1.5 billion in April, driven by optimism following speculation of a temporary reversal in US tariff policies. This trend reflects a growing appetite for higher-risk assets alongside improved performance in US stock markets.

The Bank of England’s forthcoming interest rate decision has added another layer of complexity to the market narrative. Economists predict a 25 basis point reduction, potentially taking rates from 4.5 per cent to 4.25 per cent. Investors and analysts alike are weighing the implications of these cuts on domestic growth, inflation, and labour market dynamics. Such concerns have contributed to cautious behaviour within the UK’s fixed income markets.

Despite outflows from bonds, there are indications that investor opinion on UK assets may be shifting. Notably, prominent global executives have signalled renewed interest in British markets. Larry Fink, CEO of BlackRock, suggested that UK stocks are undervalued, presenting opportunities for tactical investment gains. As North American and European equities perform strongly, UK equity funds appear to be on a path to stabilisation, with April witnessing the lowest outflows since mid-2024.

Looking ahead, uncertainty regarding global trade policies and economic growth continues to dictate the investment landscape. While some market participants seek to capitalise on opportunities amidst volatility, others remain hesitant, opting to recalibrate their portfolios in response to rapidly changing conditions. These developments underline the ongoing battle between caution and opportunism within financial markets.