London Daily

Focus on the big picture.
Thursday, Jun 25, 2026

Analysis: Britain takes fight to restore investor faith into 2023

Analysis: Britain takes fight to restore investor faith into 2023

Major investors are rethinking their support for Britain's economy following months of political turmoil and persistent Brexit uncertainties, as experts predict its recovery from a global recession will be slow and painful.

While governments worldwide are grappling with high inflation and low growth, UK policymakers are still rebuilding fiscal and political credibility following the brief, chaotic premiership of Liz Truss.

Top financial industry figures say that even with Truss gone, a tight labour market, low business investment and weak exports mean the economy will lag peers next year. Worries about growth are leading some investors to limit their holdings of the pound and British debt.

"For the time being, we think the risks are too high compared to the rewards," said Vincent Mortier, chief investment officer at Amundi, Europe's largest fund manager, which manages 1.9 trillion euros ($1.98 trillion) in assets.


Foreign investors have traditionally been attracted by Britain's strong rule of law, stable governance and thriving financial and professional services sector. But an open economy means any change in perception can have a large impact.

The fact that Truss - elected by her party, not the country - could pile pressure on the Bank of England and sow mayhem in markets, has heaped scrutiny on Britain's politics and finances.

Her replacement by ex-finance minister Rishi Sunak calmed UK assets, but investors are still brooding over the near-collapse of pension funds and how close Britain came to a financial disaster entirely of its own making.

UK equity funds saw their second-biggest monthly outflows on record in November, data from funds network Calastone shows, a sign investors remain wary since the September crash.

Sterling remains down 9% against a strong U.S. dollar and 3.5% lower versus the euro in what is set to be its worst year since the Brexit vote roiled markets in 2016.

Like other governments, Britain - which plans to raise just over 300 billion pounds, mostly by selling bonds in financial year 2023/24 - has seen borrowing costs rise sharply in 2022.

The benchmark 10-year gilt yield is now above 3% , up more than 200 basis points - in line with U.S. and German yields, but making 2022 the worst year for UK government debt since 1994.

The Bank of England's sales of bonds from its balance sheet will put further pressure on gilts prices by increasing supply.


LONG RECESSION


Britain is expected to endure a protracted recession, with official forecasts pointing to a 1.4% contraction next year. In March, before the full impact of the Ukrainian war was felt, the projection was for 1.8% growth.

Ratings agency Moody's sees UK government debt remaining above 100% of gross domestic product for years.

Saker Nusseibeh, CEO, International at Federated Hermes, which managed $669 billion in assets at Dec. 31, said Truss's botched plan for Britain to borrow its way out of its slow growth rut had inflicted heavy reputational damage overseas.

But he told Reuters that Truss deserved credit for acknowledging something radical needed to happen to halt years of stagnant growth.

"While the government attends to fixing past problems, the focus on the big picture long-term is missing from the rhetoric right now," said Nusseibeh, calling for stronger trade ties with the United States and European Union, which Britain left in 2020.

TS Lombard economist Dario Perkins, credited with coining the term "moron premium" to describe the repricing of UK assets under Truss, told Reuters nobody knew how to "fix the UK today".

"I think most investors realise that Brexit has been a sort of disaster and that the Bank of England can't really solve the problems we face," he said.


'KINDNESS OF STRANGERS'


When former BoE Governor Mark Carney warned in 2016 that Britain was reliant on the "kindness of strangers", foreign direct investment (FDI) represented nearly half the net inflows of funds from abroad.

In the latest data, up to the second quarter of this year, FDI represented more than half the net outflow - a result of strong UK investment abroad but weak inward investment too. The data may also be subject to pandemic-related disruption.

"The UK does look and feel like it's a different bet for international investors than it did 10 years ago," Vivek Paul, UK chief investment strategist at the BlackRock Investment Institute, part of the $10 trillion money manager, told Reuters.

Britain has increasingly financed its enormous current account deficit by selling financial services and bonds to the world, rather than attracting FDI into UK companies.

There are also concerns about how much companies in Britain are prepared to invest in equipment, buildings and staff training to spur growth from the bottom up.

Its business investment performance now sits 6% below its level in mid-2016 as of the second quarter of 2022 - compared to increases of 23% for France, 19% for the United States and 4% for Germany, according to a Reuters analysis of OECD data.

That underperformance on investment means productivity is lagging, with the Confederation of Business Industry expecting output per worker to be 2% below pre-pandemic levels by end-2024. It has warned of "a lost decade of growth".

Two years before a general election must be held, Sunak says the government is listening.

As well as hiking taxes and restraining spending to address the public finances, he has mobilised finance minister Jeremy Hunt to protect London's position as Europe's hub for trading and banking.

A makeover of the financial rulebook is aimed at better using the trillions of pounds moving through the City of London to drive growth and keep tax receipts flowing in.

New freedoms enabling insurers to invest in private sector projects such as infrastructure, and reforms to listings rules should meanwhile help foster budding technology, health and green energy firms.

Stephen Welton, executive chairman of major growth capital investor BGF, said attracting foreign investment was like a global competitive sport - one that Britain had previously excelled at.

"You need all the advantages and you need to play your hand well," he told Reuters. "So we've handicapped ourselves in recent years with continuing uncertainty and we have to recognise that."

Newsletter

Related Articles

0:00
0:00
Close
UK Financial Services Reform Debate Intensifies Over Ministerial Regulatory Powers
UK Energy Price Cap Rise Expected to Keep Inflation Above Target Through 2026
UK Biohacking and AI Wellness Trends Drive Surge in Personal Health Monitoring
UK Social Care Sector Sees Workforce Shift as Overseas Recruitment Masks Domestic Labour Decline
Nuffield Trust Warns UK Health Budgets Remain Vulnerable Despite Record Spending Levels
UK Coal Pension Surplus Debate Returns to Parliament as Reform UK MP Seeks Clarity on Distribution
UK MPs Consider E-Petition Calling for NHS Newborn Screening for Spinal Muscular Atrophy
UK Parliament Debates E-Petition Calling for Inquiry Into Pro-Israel Influence in Politics
UK Economy Grew 0.6 Percent in Q1 2026 but Business Sentiment Weakens Over Geopolitical Risks
UK Financial Services Bill Enters Lords Committee Stage With Expanded Ministerial Powers
UK Armed Forces Bill Advances With Plans for Defence Housing Service and Drone Defence Measures
UK Treasury Proposes Higher Electricity Generator Levy and Updated Mileage Allowance Rules
UK Parliament Debates Health Bill Amid Persistent GP Access and Patient Satisfaction Concerns
UK Financial Sanctions Regulator Signals Faster, Intelligence-Led Enforcement Strategy
British Chambers of Commerce Warns Business Confidence Crisis Is Dampening UK Investment
UK Parliament Debates Carbon Budget Order as Pressure Mounts on Net Zero Delivery
UK Energy Price Volatility Reinforces Pressure for Faster Electrification of Economy
UK Defence and Aerospace Strategy Gains Momentum as Keir Starmer Pushes Industrial Cooperation in Berlin
Department for Environment, Food and Rural Affairs Unveils £53 Million Investment in Farming Innovation
Foreign Secretary Announces Medical Evacuations and University Support for Palestinians in Gaza
Government-Commissioned Report Highlights Economic Exposure to Climate-Driven Fossil Fuel Price Shocks
Climate Change Committee Warns UK Is Off Track on Emissions Cuts and Calls for Faster Decarbonisation
Prime Minister Keir Starmer Calls for Deeper UK-EU Defence and Industrial Cooperation in Berlin Address
Met Office Issues Red Extreme Heat Warning as Temperatures Set to Surpass 37°C in England and Wales
Bank of England Holds Interest Rates at 3.75% as Inflation Outlook Remains Uncertain
UK Announces New Military Infrastructure at Catterick to Support Engineer Regiment Relocation
University of Reading Ranked Among Top 100 Globally for Sustainability Impact
UK Launches Counter-Fraud Taskforce to Investigate Covid Loan Scams
UK Government Introduces Customs and Tax Reforms to Support High Street Retailers
Jonathan Haskel Nominated as Chair of the UK Office for Budget Responsibility
UK Government Expands Powers to Recover Benefit Debt and Tackle Welfare Fraud
Labour Party Leadership Contest Intensifies as Andy Burnham and Ed Miliband Clash Over Economic Direction
Rail Operators Urge Essential Travel Only as Extreme Heat Threatens UK Network Stability
United Kingdom Issues Red Extreme Heat Warning as Temperatures Forecast to Reach 38°C
Keir Starmer Announces Resignation as UK Prime Minister Amid Deepening Political Instability
UK Biotechnology Sector Receives Increased Public Funding to Support Regional Growth
Police Chiefs Update National Protest Management Guidelines Amid Rising Demonstration Activity
UK Aviation Regulator Expands Support for Regional Airports to Strengthen Domestic Routes
CMA Launches Investigation Into Retail Pricing Across UK Grocery Sector
UK Energy Operator Warns of Winter Supply Pressures Despite Stable Overall Grid Outlook
UK Research Council Expands Funding for Regional Biotechnology and Life Sciences Clusters
UK Compensation Scheme for Post Office Horizon Scandal Reaches 80 Percent Completion
Police Chiefs Issue Updated National Guidance on Managing Large Public Demonstrations
UK Expands Regional Airport Funding Scheme to Boost Domestic Connectivity
UK Competition Watchdog Launches Inquiry Into Grocery Pricing Practices
National Grid Warns of Tight Energy Management Needs During Upcoming Winter Peak Demand
UK Education Department Introduces National Standards for AI Use in Secondary Schools
UK High Court Clears North Sea Carbon Capture Project After Final Legal Challenge Fails
Northern Ireland Leaders Hold Emergency Talks on Trade Disruption Under Windsor Framework
Welsh Government Moves to Expand Social Housing in Response to Severe Affordability Pressures
×