Nearly 1/4 UK investors reduce exposure to domestic stocks as political uncertainty reaches record high

Political uncertainty is beginning to influence how UK retail investors position their portfolios, with almost one in four (23%) saying they have changed their investment allocation as a result, according to investing and trading platform IG‘s latest biannual Client Sentiment Study. 

Among those who have repositioned, the most common response has been to shift investments from UK markets into international markets (42%), while 19% have increased their cash holdings.

The research reveals that concern about political uncertainty has climbed to its highest level since IG began tracking investor sentiment in 2022. More than six in ten (61%) investors now cite domestic political uncertainty as a key risk to their portfolios – up 11 percentage points from just six months ago.

Further highlighting the impact on market sentiment, almost four in five investors (78%) believe ongoing political uncertainty will either negatively affect UK stock market performance or increase market volatility over the coming months.

Geopolitical tensions compound investor concerns

Domestic political uncertainty is also being compounded by a more challenging global backdrop. Geopolitical conflict has become the single biggest concern for UK investors, with 69% citing wars and international tensions as a risk to their investments, up sharply from 51% six months ago.

As geopolitical risks have intensified, investors have also become more concerned about the knock-on effects for the global economy. Concern about inflation has risen to 53% (up from 44%), while worries over high interest rates have increased significantly to 38%, compared with 18% six months ago.

Table 1: Investors’ top concerns compared with six months ago

“Our latest research suggests political uncertainty is beginning to influence investor behaviour, not just investor sentiment. Rather than simply expressing concern about the outlook, many retail investors are actively reassessing where they want their money invested.

“It’s also important to view these findings in the wider context. Investors are navigating uncertainty on multiple fronts – from domestic politics to escalating geopolitical tensions and persistent inflationary pressures. Together, these factors are creating a more cautious investment environment.

“That doesn’t necessarily mean investors are abandoning risk altogether. Many continue to look for long-term growth opportunities, but confidence in UK markets will depend on greater political and economic certainty over the months ahead.”

Chris Beauchamp, Chief Market Analyst UK at IG