Investors turn away from Starmer’s britain as economy falters
Britain has become the world’s least favoured investment market as economic struggles deepen in the wake of Rachel Reeves’s Budget, according to a global survey of fund managers.
The latest monthly survey by bank of america found that Britain is not only the least attractive nation for investment but is now less popular than bonds, cash, energy, and utilities. Investor sentiment towards the UK has plummeted to an 11-month low, with analysts blaming the country’s stagnant economy and persistent inflationary pressures.
Elyas Galou, an investment strategist at the bank, remarked: “The UK is the living definition of stagflation. On the one hand, you have subdued growth, which is linked to very low productivity, and on the other, you have an inflation problem that refuses to go away.”
The UK economy grew by a mere 0.1% in the final quarter of 2024. While private sector activity contracted, increased government spending just about prevented GDP from shrinking. However, business investment has plunged following the chancellor’s budget, which included a controversial £25bn hike in employers’ national Insurance contributions. Corporate confidence has nosedived amid fears that these measures will lead to job losses and higher costs for consumers.
“When I speak to investors, I often ask when was the last time you heard some positive news about the UK, and they struggle to answer,” said Mr Galou. “It is fundamentally a growth problem.”
The bank of america’s findings do not bode well for the Government’s ambitions to attract foreign investment. Ms Reeves has been keen to draw in overseas capital to stimulate long-term economic expansion, even travelling to china last month in an effort to rebuild trade relations. The government has also relaunched trade talks with India in hopes of securing a deal.
Yet, while britain struggles to appeal to global investors, fund managers are turning towards the US and are increasingly optimistic about the eurozone.
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“UK equity funds have lost nearly half of their assets under management since 2016, the year of brexit. That equates to $129bn in outflows,” Mr Galou explained. “For European funds, the equivalent figure is 40%, and that includes the UK—meaning Britain has been the main driver of capital leaving Europe.”
By contrast, US equity funds have seen inflows of $1.1 trillion, highlighting a significant shift of investment away from the UK and the wider European market towards the United States.
A Treasury spokesman defended the government’s economic strategy, stating: “Capping the rate of corporation tax, establishing a national wealth fund, and creating pension megafunds is just the start of our plan for change, which will get britain building, unlock investment, and support businesses so we can raise living standards and ensure all parts of the country benefit.”
However, with investor confidence in the UK at a record low, the government faces an uphill battle in convincing global markets that Britain remains a viable and competitive place for investment.
