UK investors withdraw from equities at record pace amid bubble and Budget fears
UK investors have withdrawn from equities at a record pace amid investor nerves over soaring stock prices and a flurry of forthcoming tax hikes at the Budget.
As much as £7.3bn was pulled from equity funds in the four months to the end of October, according to figures from Calastone, representing the largest outflow ever recorded.
Some £3.6bn of those net outflows were withdrawn in the month of October alone, representing the fifth consecutive month of outflows following a period of net inflows in the first half of the year.
UK-focused funds accounted for one third of the net selling, with investors withdrawing £1.2bn from the sector, while global funds saw a record £911m leave the sector and North American funds shed £649m, their third worst month on record.
Edward Glyn, Head of Global Markets at Calastone said: “Two forces are driving investor behaviour. One is simply nerves about global equity prices, especially in the US. Outflows from global, US and tech funds are all part of that story.
“The other force stems from growing concern about Rachel Reeves’s budget and the anticipated tax implications. For some, it’s a simple matter of crystallising capital gains in case rates go up. This drove a huge uptick in selling this time last year and it’s clearly round two in 2026.
“For many others it’s about pensions. The tax-free lump sum that over 55s may draw from their pensions is such a vital part of most people’s retirement planning that the risk it will be scrapped or drastically scaled back is simply too concerning for many diligent pension savers in their 50s and beyond to contemplate.
“Speculation on policy has made this drastic step the only rational choice for many, even if it may ultimately harm their longer-term financial goals.”
AI bubble concerns
AI-related firms lost over £750bn in market value last week, led by a £350bn plunge in chipmaker Nvidia, which lost nearly ten per cent over the course of the week. Meanwhile, Meta – the owner of Facebook, Whatsapp and Instagram – lost near £68bn.
The stock moves have kicked fears up a notch, with concerns the years-long boom in tech stocks, fuelled by rampant speculation over the promise of artificial intelligence, has evolved into an AI bubble that will fail to deliver the financial returns investors had anticipated.
A huge surge in the valuations of the world’s biggest tech stocks could lead to a “collapse” triggering a wider market downturn, the International Monetary Fund (IMF) warned last month.
The relative size of trillion-dollar firms like Microsoft and Meta, which together account for around a third of the US S&P 500 index, now represent a concentration risk greater than during the 2000 dot-com bubble, in which scores of tech firms saw their stock collapse, the IMF said.
“Against substantial AI-related investments the possibility of mega-cap stocks failing to generate expected returns to justify current lofty equity valuations could trigger deterioration in investor sentiment and make the stocks susceptible to sudden, sharp correction,” the IMF said.
“Valuations would collapse as a result, making the broader benchmark index vulnerable to downturns.”