Fund managers are pulling out of UK stocks at the fastest pace since 2004. Analysis by Bank of America shows that average equity allocations to the UK dropped from a net 2% underweight in August to a net 20% underweight in September. With allocations into UK stocks at its lowest in 18 months, Bank of America analysis suggests investors have been deterred by Britain’s sluggish growth and the prospect of tax hikes in the upcoming Budget. Elyas Galou, an investment strategist at Bank of America, said UK assets “are the most unloved assets right now,” adding that investors are “now almost considering the UK as if it were an emerging economy.” Shadow Business Secretary Andrew Griffith said it is “incredibly serious” that investors are “selling out of Britain at the same time as wealth creators are leaving,” while Hugh Sergeant, a fund manager at River Global Investors, said investors are “terrified of this Government, and particularly the next Budget.”

The UK and US have unveiled a landmark £31bn ‘Tech Prosperity Deal’ to boost artificial intelligence, quantum computing, and nuclear power, described by Prime Minister Sir Keir Starmer as a “generational step change” in bilateral relations. As part of the deal, Microsoft will invest $30bn (£22bn) in the UK’s AI sector, its largest investment outside the US, funding data centres and a new supercomputer in Essex, with CEO Satya Nadella highlighting AI’s potential to drive economic growth. Google is also set to invest £5bn over the next two years, supporting AI research through DeepMind and the opening of a new data centre in Waltham Cross, expected to create 8,250 jobs annually. The initiative aims to foster innovation, create highly skilled employment, and develop new AI infrastructure, particularly in designated growth zones in North-East England.

Office for National Statistics (ONS) data shows that the number of jobs in the UK economy was down by 119,000 year-on-year in the July to August period. The unemployment rate held steady at 4.7%, with this the highest rate in four years. The number of payrolled employees dropped by 6,000 in July, with a 142,000 decline over the year. Provisional estimates suggest there was a fall of 8,000 payrolled employees in August. The economic inactivity rate, meanwhile, was down 0.8 percentage points on a year earlier, coming in at 21.1%. The ONS data shows that there were 2.3 unemployed people for each vacancy, up from 2.2 in the previous quarter. Overall vacancies fell by 10,000 to 728,000 in the three months to August. The data also shows that annual wage growth, excluding bonuses, hit 4.8% in the three months to July. This is down from 5% in the previous quarter and the lowest since May 2022.

Britain is experiencing a significant decline in graduate job opportunities, with vacancies on Reed’s website dropping from 180,000 to 55,000 since 2021/22, according to James Reed, CEO of the recruitment firm. Research by High Fliers shows that there was a 14.6% decrease in graduate hiring among the top 100 employers last year, the steepest drop since 2009. Mr Reed, who noted that AI is automating many white-collar roles, is urging families to encourage young people to consider manual labour as a viable career path.

The Office for Budget Responsibility (OBR) has reportedly told the Chancellor that it will downgrade productivity forecasts for the UK economy. A Treasury source said: “We don’t know precisely what they are going to say on productivity, but we have been given indications there will be a downgrade.” The source pointed to the Conservative government’s poor record on productivity, arguing that Labour “are the ones picking up the bill.” It is noted that a downgrade to growth forecasts would hit the Chancellor’s fiscal buffer. The National Institute of Economic and Social Research says Rachel Reeves will have to find up to £50bn in extra taxes or savings to rebuild her headroom. While Capital Economics has suggested that the Chancellor faces a shortfall of around £30bn, analysts at Deutsche Bank and JPMorgan believe it may be lower.

UK businesses are grappling with rising costs but are largely refraining from passing these increases onto customers. According to Lloyds’ UK Sector Tracker, overall business cost inflation reached a three-month high in August, with eight out of 14 sectors experiencing faster cost increases. Despite some price hikes, 13 sectors did not fully transfer these costs to consumers. Nikesh Sawjani, senior UK Economist at Lloyds, said: “Businesses’ costs continue to rise, and the Tracker shows firms aren’t passing the full extent on to customers.” He added: “This could help moderate spikes in inflation for now, although businesses might reconsider their strategies if cost increases accelerate further or demand conditions improve.”

A deal that would remove tariffs on UK steel exports to the US has reportedly been put on hold indefinitely. The UK and US signed a trade deal in June that reduced tariffs on car and aerospace imports to the US. However, no terms were agreed for British steel, leaving tariffs at 25%. Industry sources say that while failure to secure a 0% tariff deal was disappointing, the UK retains an advantage as other countries face tariffs of 50%. Gareth Stace from UK Steel said it is “even more imperative now” that the Government “beefs up its own trade defences to ensure UK steelmakers have a sustainable share of their own market.”

The state pension is likely to rise by £560 a year in April, with the triple lock pledge set to deliver a 4.7% increase. Under the triple lock, the annual state pension increase follows the highest of inflation, average earnings growth or 2.5%. While inflation is forecast to be 4% in September, Office for National Statistics data shows that pay including bonuses for the three months to July was up 4.7%. An increase at this rate would see the new flat-rate state pension rise to £12,534.60 a year, while the old basic state pension would go up £431.60 to £9,607 a year. Former Pensions Minister Sir Steve Webb, a partner at pension consultants LCP, notes that the standard rate of the new state pension is “creeping ever closer to the frozen personal tax allowance,” which currently stands at £12,570 and is set to remain at the same level until 2028.

Financial Conduct Authority data shows that pension savers withdrew more than £70bn from their retirement pots in 2024/25, a 35.9% increase on the previous year. Experts attribute the surge, in part, to concerns over potential pension tax changes, with speculation around the upcoming Budget and future inheritance tax rules adding to uncertainty. Only 30.6% of people accessing their pension for the first time took regulated advice, slightly down from 2023/24, while annuity sales rose by 7.8% to 88,430. Sir Steve Webb, a former Pensions Minister who is now a partner at pensions consultants LCP, said: “Given that pensions should be a long-term business, it is deeply disappointing that consumer behaviour is being driven so profoundly by uncertainty around public policy.”

The UK’s Attorney General, Lord Hermer KC, has emphasised the importance of the rule of law in driving economic growth and attracting global investment. Speaking at the launch of the Legal Livery Group, he stated that trust in British institutions and courts reassures investors. Lord Hermer said: “It is why global firms settle their disputes in our courts.” He noted that the legal sector contributed £34bn to the UK economy in 2022, representing 1.6% of GVA.

Japan’s Path to Rebirth party has announced it will appoint an artificial intelligence as its new leader after founder Shinji Ishimaru quit following poor election results. The maverick party, which allows members to set their own agendas, said the AI will oversee decisions such as resource allocation but will not dictate political activities. Koki Okumura, a Kyoto University AI researcher, will act as the party’s nominal leader while details of the AI’s role and implementation are finalised.