Investors dump UK stocks as Budget rumours compound caution
UK equity funds have been hit with another month of outflows after investors dumped stocks in favour of cash and bonds. Investors withdrew a net £601m from UK stock funds during August, driving a broader £315m net outflow across global equity strategies. The retreat marks the fourth consecutive month of net selling globally and the [...]
Investors have been pulling money out of UK stocks amid speculation over potential tax hikes in the upcoming October Budget, according to the latest fund flow data from Calastone. During August, UK equity funds saw a net outflow of £601 million, contributing to a larger £315 million net outflow across global equity strategies. This marks the fourth consecutive month of net selling globally and the 14th month of equity outflows in the past 15 months, with a total of £15.16 billion pulled from equity funds since June 2025.
European stock funds experienced the most significant outflows, with £145 million withdrawn, while North American funds lost around £3 million. Edward Glyn, head of global markets at Calastone, attributed the UK outflows to caution surrounding potential tax hikes, stating that continuous Budget speculation is adding to investors' apprehension. If investors believe capital gains and pension tax breaks are at risk, they may choose to act now rather than wait for possible delays.
Chancellor John Healey's recent speech did little to alleviate Budget speculation, as he repeatedly refused to rule out tax hikes. The chancellor is also facing increased pressure from the global bond rout, which has pushed borrowing costs to soaring levels. Some economists have predicted that the remaining fiscal headroom of £23.6 billion could be reduced by half due to pressures on gilt yields.
Instead of abandoning financial markets, capital has been redirected towards fixed income, money markets, and real assets that offer steadier income and downside protection. Safe-haven money market funds, which primarily invest in short-term, high-quality debt issued by governments and top-rated financial institutions, had their strongest monthly inflow since November, taking in a net £364 million – double the 12-month average.
Bond funds also attracted £407 million in net new capital, marking their fourth consecutive month of positive inflows.
Overall, cash and fixed-income strategies have absorbed £8.7 billion since equity outflows began last summer.
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