The snub to the UK market is even more pronounced because overseas funds recorded net inflows during the month.
EU funds absorbed £43m of net inflows in September, according to Calastone, while US funds saw £413m paid in and global funds recorded inflows of £422m. The UK was the only geography to shed money.
The exodus reverses a brief reprieve for the embattled London market, after Labour’s election victory boosted investor confidence and outflows from UK-focused funds fell to their lowest level since August 2021.
Charles Hall, from Peel Hunt, said: “There was enthusiasm when Labour came in that the dynamic was changing in the UK and that has dissipated fairly quickly with the threat of tax changes.
“Although investors were getting more minded to invest in the UK that has been put to bed until we get the Budget. We are in a holding period.”
“If capital gains tax on equities went from 20pc to 45pc that will totally kibosh people’s desire to invest in equities because why are you going to take any risk when almost half of the value upside disappears?
“Confidence was returning in July, and then it got scotched because of the question marks. If you’re making an investment decision, you need to know that the criteria that you’re investing on is going to still be there in the years to come.”
Overall equity funds of all types and geographies fell out of favour in September with British investors pulling a net £564m from their holdings, the first outflows since October 2023, Calastone said.