Investors dump UK stocks as Reeves’ pessimism takes its toll

Investors pulled £666m out of UK-focused equity funds last month as Labour’s “rather pessimistic commentary” on the economy crushed hopes of a revival.

Figures from the Calastone fund network support the view that Rachel Reeves’s pessimism about Britain is backfiring.

It comes as business surveys point to a decline in confidence among bosses as a result of the Chancellor’s downbeat rhetoric.

Reeves has said he inherited the worst economic circumstances since the Second World War and warned that painful decisions (likely tax rises) are needed in this month’s Budget.

Calastone figures revealed that the scale of fund outflows from the UK had deepened compared to August, when £510m was withdrawn. It was the worst monthly figure since May.

UK equity funds have been suffering a prolonged exodus, with capital outflows occurring every month for more than three years.

Edward Glyn, head of global markets at Calastone, said: “The new government’s rather dovish commentary on the UK economy appears to have put an end to the nascent revival of interest in domestic equities that we first detected in UK trade data. July.

“UK-focused funds appear to be off the menu for investors at the moment.”

A separate business survey showed growth across the UK economy slowed in September to a three-month low as the post-election rebound fades.

The Purchasing Managers’ Index (PMI) compiled by S&P Global fell from 53.8 to 52.6, with the 50 mark marking the difference between growing and contracting business activity.

He said the rate of job creation in the services sector had fallen “considerably”.

Tim Moore, economic director at S&P Global Market Intelligence, said some companies in the sector ‘commented on delayed decision-making among clients due to business uncertainty ahead of the Budget.’