Investors are dumping UK shares at the fastest pace in more than two decades, according to a report.
In the latest blow to the City, a Bank of America survey of 165 fund managers found they are 20 per cent ‘underweight’ in British stocks, meaning they take a particularly dim view of the London market.
This was down from 2 per cent ‘underweight’ in August, and sparked warnings investors are ‘terrified’ of the upcoming Budget and increasingly see the UK as an ‘emerging economy’.
The swing downwards in sentiment represented the biggest shift out of UK shares since 2004 and the second largest in the survey’s history.
The bruising vote of no confidence came as Chancellor Rachel Reeves welcomed her US counterpart Scott Bessent to Downing Street ahead of Donald Trump’s state visit to the UK.
Elyas Galou, investment strategist at Bank of America, said: ‘UK assets are the most unloved assets right now. Investors are now almost considering the UK as if it were an emerging economy.’
Bad timing: Chancellor Rachel Reeves welcomes her US counterpart Scott Bessent to Downing Street ahead of Donald Trump’s state visit to the UK
Hugh Sergeant, a fund manager at River Global Investors, added: ‘Investors are terrified of this government, and particularly the next Budget.’
The London market faces a worsening crisis with high-profile firms being snapped up or switching their listings to New York.
Reeves has been warned that hopes of a revival in stock market flotations this autumn could be derailed by more tax rises in her November Budget.
Galou said the UK was out of favour because money managers were concerned about the ‘weak fiscal outlook’ and ‘very unpopular government’.
‘The macro outlook is dominated by stagflation whereas the market believes the US and European economies are heading for a soft landing,’ he said.
The UK also has ‘relatively higher exposure to international investors’, Galou added. Allocation to UK stocks is the lowest since March 2024, according to the bank.
Its findings are even more galling because the fund managers surveyed, who handle £315billion of assets, are the most positive they have been on stocks generally since February.
Shadow business secretary Andrew Griffith said: ‘Investors are selling out of Britain at the same time as wealth creators are leaving.
‘Under Rachel Reeves, the tide is going out and leaving the economy parched of investment and skills.’
Bank of America’s shock findings come after The Mail on Sunday revealed that traders have placed their heaviest bets against the pound since the Liz Truss economic meltdown three years ago.
In an ominous sign for Reeves, speculators have resumed betting on a fall in sterling’s value ahead of her Budget, when she is set to sanction more tax rises to fill a hole in the public finances of up to £50billion a year.
It is not just foreign investors who are shunning the London stock market.
In a recent report, lobby group the Confederation of British Industry (CBI) called for bold reforms to revitalise the London Stock Exchange to save it from ‘drifting into irrelevance’.
The proposals included removing stamp duty on share purchases – the 0.5 per cent tax that only applies to UK equities.
Critics say the levy makes it more attractive to buy overseas stocks such as Nvidia or Amazon instead of investing in British firms.
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