The conflict in the Middle East has prompted a stock market exodus with UK-based investors pulling more than £1.4bn out of funds last month.
Monthly fund withdrawals surged by 55pc in March to £1.44bn as the war in Iran fuelled fears of a prolonged economic crisis, according to global funds network Calastone.
It was the seventh-worst monthly sell-off in at least 12 years and the biggest since November last year, when investors were spooked in the run-up to Rachel Reeves’s Budget.
March was also the 10th month in a row in which UK-based investors sold more stocks than they bought.
Edward Glyn, the head of global markets at Calastone, said: “The conflict in the Middle East represents another economic shock and the fallout in the UK could be significant. Fund investors are voting with their feet and pulling capital out of risk assets in favour of cash.”
The war and Iran’s blockade of the Strait of Hormuz – the narrow shipping channel through which a fifth of the world’s oil and gas exports passed – have triggered the biggest energy supply shock in global history. Oil prices have soared above $110 per barrel, bringing fears of a new inflation wave and recession risks.
The fund withdrawals will be a blow to the Chancellor, who is trying to encourage the British public to invest their savings in stock markets.
Ms Reeves used her latest Budget to slash the amount that under-65s can save tax-free in their individual savings accounts each year from £20,000 to £12,000 from April 2027, in a move designed to push savers to put money in stocks and shares instead.
British stocks saw the biggest withdrawals of any region in March. Investors pulled £592m from UK-focused investment funds, up from £555m in February.
Investors have bet heavily against British stocks since the start of the year with the number of short-selling positions against UK-listed companies reaching its highest point since the first quarter of 2020, according to data from Breakout Point. Short-sellers make money when a stock declines in value.
The total number of bets against UK stocks reached 3,348 in the first quarter of 2025, compared to a record high of 3,426 in the first three months of 2020 when markets were shaken by Covid-19.
Wizz Air, Greggs and WH Smith are among the businesses that hedge funds are currently betting against.
Funds focused on Europe, Japan and the wider Asia-Pacific region also saw large withdrawals, with only North American funds recording inflows.
Turmoil in government bond markets, as traders became increasingly worried about countries’ abilities to keep debt and inflation under control, meant investors also pulled £535m out of bond funds.
