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Bank of America Reports Sharpest Decline in UK Equity Exposure in Over Three Years

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  Published in Stocks and Investing on Tuesday, November 18th 2025 at 7:50 GMT by Bloomberg L.P.

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Bank of America Highlights the Sharpest Decline in UK Equity Exposure in Over Three Years

Bank of America (BofA) analysts have identified an unprecedented contraction in institutional exposure to UK equities, a trend that signals growing caution among global investors. According to a research brief released on November 18, the amount of UK shares held by major investors fell to its lowest level in more than three years, reflecting a broader reassessment of the country’s economic prospects and the broader macro‑environment that is shaping risk sentiment.

The Numbers Behind the Cut

BofA’s research team drew on a blend of data sources—including the UK’s annual “Investor Holdings” survey, global asset‑allocation databases, and proprietary models that gauge portfolio concentration—to estimate the aggregate weight of UK equities in the portfolios of large institutional investors. The study found that UK exposure dropped from roughly 5.2 % of global equity allocation in mid‑October to about 3.8 % by the end of the month—a loss of roughly 1.4 percentage points. In relative terms, this represents a near‑30 % reduction in weight.

When compared to other major markets, the UK’s decline stands out. While exposure to U.S. and European stocks also eased, the magnitude of the reduction in the UK was the sharpest over the past 36 months. The research further shows that the pullback has been driven by a combination of short‑term and long‑term factors, as outlined below.

Why Investors Are Pulling Out

1. Stagnating Growth and Inflationary Pressure

The Bank of England’s latest forecast projects GDP growth of just 0.3 % for the next 12 months—a sharp slowdown from the 2.2 % growth rate seen earlier this year. Coupled with persistent inflation that remains above the central bank’s 2 % target, the combination of a weak growth outlook and elevated price levels has eroded confidence in corporate earnings and valuation multiples.

BofA notes that the UK’s fiscal deficit is projected to widen, with government spending projected to exceed revenue by more than 2 % of GDP this year. The resulting fiscal headwinds are expected to constrain corporate profit growth further.

2. Political Uncertainty and Policy Uncertainty

The United Kingdom’s political landscape has been anything but steady in the last 18 months. The decision to accelerate the exit from the European Union, ongoing debates over post‑Brexit trade agreements, and the fallout from the 2024 general election have introduced a high degree of policy uncertainty. Investors view the policy uncertainty as a risk premium that depresses valuations, especially for sectors that are highly exposed to government regulation, such as utilities and financial services.

3. Interest‑Rate Outlook

The Bank of England’s monetary policy stance remains hawkish, with a projected policy rate of 4.25 % by the end of the year. This aggressive stance is driven by the central bank’s intent to bring inflation down to target. Higher rates increase the discount rate applied to future cash flows, thereby reducing present‑value estimates for equities. BofA’s modeling indicates that the UK’s higher yields translate into higher discount rates relative to peers such as Germany and France, further diminishing the relative attractiveness of UK stocks.

4. Valuation Concerns

On a fundamentals basis, the UK market has reached a valuation premium relative to the broader G7. Current price‑earnings (P/E) multiples for the FTSE 100 sit at roughly 16.3×, compared with 18.1× for the S&P 500. This premium, combined with a low growth outlook, creates a valuation “squeeze” that many investors view as unsustainable. Consequently, investors are reallocating capital to markets that offer a more favorable risk‑return profile.

Implications for the UK Stock Market

Short‑Term Volatility

BofA warns that the sudden reduction in demand could increase short‑term volatility in UK equity indices. Lower liquidity tends to amplify price swings as remaining investors react to news and earnings reports. The research team predicts that the FTSE 100 could see increased trading volume and volatility over the next three to six months.

Longer‑Term Recovery Potential

Despite the current headwinds, BofA also acknowledges potential catalysts for a reversal. These include a possible policy shift if the Bank of England eases its monetary stance, a fiscal stimulus package aimed at boosting growth, or a successful renegotiation of trade agreements that could unlock new export opportunities. In a medium‑term view, the research team estimates that a modest lift in growth could lift the FTSE 100 by 5–8 % over the next 12 months.

Impact on Portfolio Construction

Institutional investors are rebalancing their global portfolios to increase allocations to sectors and geographies that are perceived as safer or more growth‑oriented. BofA’s research suggests that investors are favoring U.S. technology, Asian growth markets, and European equities with higher dividend yields.

Contextual Links and Further Reading

To better understand the broader backdrop, BofA refers readers to:

• The Bank of England’s latest inflation report, which outlines the inflation trajectory and monetary policy expectations.
• UK Office for National Statistics (ONS) data on GDP growth, unemployment, and consumer spending.
• Bloomberg’s coverage of the Bank of England’s policy meeting and statements from the Governor, which provide insight into the central bank’s stance on future interest rates.

The research also compares the UK’s situation with that of the United Kingdom’s major trading partners. For example, Germany’s more robust growth outlook and lower inflation expectations create a different risk‑return environment, leading many investors to tilt away from UK equities in favor of German stocks.

Bottom Line

Bank of America’s latest analysis captures a moment of heightened caution among global investors toward the UK market. The sharp reduction in equity exposure—its steepest in over three years—reflects a confluence of factors: sluggish growth prospects, high inflation, policy uncertainty, higher interest rates, and valuation concerns. While these headwinds could amplify short‑term volatility, BofA acknowledges that changes in monetary policy, fiscal stimulus, or trade policy could provide a catalyst for a recovery in the near future. For now, however, the market’s current trajectory points to a cautious stance among large institutional investors, as they seek to mitigate risk in an increasingly uncertain global environment.