UK STOCK MARKET SUFFERS RECORD INVESTOR EXODUS AS FUND MANAGERS SHUN BRITAIN

The United Kingdom’s stock market has experienced its sharpest exodus of investors for more than two decades, with international fund managers increasingly viewing Britain as if it were an emerging economy. A well-respected survey from Bank of America has revealed that fund managers have drastically reduced their holdings in London-listed shares this month, dragging allocations to UK equities to their lowest level since March of the previous year.

This withdrawal marks the most significant monthly outflow from British stocks since April 2004, matching the heaviest decline on record. Elyas Galou, an investment strategist at Bank of America, commented that UK assets are currently the ‘most unloved assets’ in the eyes of global investors. The shift is seen as a blow to Chancellor Rachel Reeves, who is striving to boost the economy amid mounting fiscal pressures caused by higher borrowing costs.

The economic outlook appears uncertain. Households and businesses across the UK now find themselves facing the prospect of tax increases in the November budget as the Treasury seeks to fill a budget gap estimated at £40 billion. The growth in the cost of living has added further strain, with annual inflation rising to 3.8 per cent in July, marking its highest level in eighteen months.

Galou cited weak productivity growth and persistently high inflation as key reasons why international investors are increasingly uneasy about the UK’s economic fundamentals. Heightened anxiety surrounds the upcoming budget, and concerns about the sustainability of the country’s debt trajectory have intensified. Yields on 30-year government bonds reached a twenty-seven year high earlier in the month, underscoring doubts about the health of the public finances. The pound has come under further pressure, with the combination of rising borrowing costs and a depreciating currency now likened to conditions in emerging markets.

The Bank of America survey, which canvassed 165 fund managers overseeing a total of $426 billion in assets between 5 and 11 September, found that the rush to exit UK equities runs contrary to a broader trend. Global investors have become more positive about the outlook for global equities, with allocations rising to a seven-month high. Sentiment has brightened as fears of a trade war have eased, but the UK stands out as an exception to this optimism.

Of the major European markets, Germany and Spain have emerged as the most favoured among fund managers. In contrast, Britain’s unloved status has led Bank of America to describe UK shares as a leading contrarian trade. Responding to these findings, a Treasury spokesperson insisted the government remains committed to making the UK the most attractive destination for business and investment. While current sentiment remains chilly, officials highlight the FTSE 100’s proximity to record highs and ongoing efforts to remove barriers to investment as parts of their strategy for economic recovery.