Reeves’s Budget prompts a stock market sell-off twice the scale of Brexit

Record Withdrawals from Equity Funds Amid Budget Uncertainty

Months of speculation and concern leading up to the Budget prompted UK investors to withdraw funds from the stock market at a rate twice as high as during the Brexit referendum, according to new data.

Investment firm Calastone reported that in 2025, UK investors removed £6.71 billion from global equity markets. This figure marks the largest annual withdrawal in over a decade, surpassing the previous record of £3.34 billion set in 2016, the year of the Brexit vote.

Back in 2016, uncertainty over the referendum's outcome led to significant outflows as investors worried about the impact on markets. In 2025, the sell-off intensified in the latter half of the year, with December representing the seventh consecutive month of net withdrawals. Between June and December, investors pulled out £10.57 billion, reversing earlier inflows.

Edward Glyn, Calastone’s head of global markets, attributed the mass exodus to heightened anxiety before the Budget. The extended lead-up to November’s fiscal announcement was marked by frequent leaks about potential tax hikes and policy changes.

Many investors were concerned about possible restrictions on tax-free pension allowances and increases in capital gains tax, though these changes were not ultimately implemented.

Glyn noted, “The sharp reduction in outflows between November and December clearly shows that months of Budget-related speculation drove record withdrawals from equity funds from June up to Budget day.”

In December, net withdrawals from equity funds totaled £188 million, a significant drop from the £812 million withdrawn in November. Calastone’s data also revealed that outflows stopped on the day of the Budget, with funds returning to the market for the rest of the month.

Economic Impact of Budget Speculation

The data adds to mounting evidence that ongoing leaks and rumors before Rachel Reeves’s November 26 statement had a negative effect on the UK economy.

The Bank of England had warned that increased uncertainty surrounding the Budget would likely dampen economic activity well into 2026. Business leaders also pointed to the prolonged anticipation as a factor harming growth.

Mark FitzPatrick, CEO of St James’s Place, commented that speculation about potential tax increases led many savers to withdraw money from their pensions out of fear.

Responding to the Calastone figures, Sir Mel Stride, the shadow chancellor, remarked, “This outcome is hardly unexpected. The uncertainty before Reeves’s first two Budgets stalled investment, and the subsequent disappointment drove investors away. Her decisions have stifled investment, slowed growth, and cost jobs.”

Shift Toward Cash and Safer Investments

While Budget-related uncertainty was a major factor in the stock market sell-off, Calastone also cited broader concerns about high valuations, particularly regarding a potential bubble in artificial intelligence (AI) stocks.

A record £5.84 billion flowed into money market funds, which invest in low-risk assets like government bonds and cash. Glyn explained that this trend indicates investors are seeking the security of cash, reflecting worries that equity prices may be overextended.

Despite the FTSE 100 reaching new highs in 2025, UK-focused funds saw net outflows of £9.55 billion, nearly matching the £9.56 billion withdrawn in 2024. This marked the tenth consecutive year that UK-based investors pulled money from domestic stocks.

Most of the movement in and out of equity funds came from regular savings accounts, and the outflows persisted despite efforts by Chancellor Reeves to encourage more retail investment in the stock market.

The government has launched advertising campaigns, supported by companies like Robinhood and Fidelity, to promote investing among Britons. The Chancellor also introduced a stamp duty exemption for trading shares in newly listed companies as part of the Budget.

While UK equities remained out of favor with local investors, global and North American funds performed better, attracting £174 million and £107 million, respectively, from British investors in December.

Actively managed equity funds experienced the largest losses, with £18.9 billion withdrawn by British investors in 2025.

The Treasury was approached for comment.