Fund outflows returned in January after two consecutive months of inflows as investors faced “increased uncertainty”, data from the Investment Association (IA) has revealed.

January 2025 saw fund outflows of £3bn, with investors unsure about the path of interest rate cuts, expectations of tariffs from the Trump administration, the emergence of DeepSeek, and a mixed outlook for the UK economy.

These outflows reversed the £2.3bn of inflows and cautious optimism seen in December 2024.

Equities drove the overall outflows in January, with the asset class experiencing withdrawals of £2.9bn, including outflows of £1.7bn from UK equities, the highest since May 2024.

Meanwhile, bond funds experienced moderate inflows of £187m in January, with specialist bond funds being the top-selling bond sector.

Mixed asset funds saw inflows of £39m, down from £231m in December, while index tracking funds remained in inflow with net retail sales of £1.8bn compared to £2.6bn in December.

However, actively managed funds experienced outflows of £4.7bn, according to the IA’s figures.

“The reversal of fund inflows in January to an outflow of £3bn emphasises that investors are exercising caution in a complex and fast moving geopolitical and macroeconomic environment,” said IA market insight & fund sectors, Miranda Seath.

“The threat of the US imposing tariffs has now become reality. We have also seen a new Chinese entrant in the AI race, DeepSeek, and this briefly introduced market volatility in the US.

“Although valuations have rebounded, investors with an equity growth objective are waiting to see how where growth opportunities may come as the introduction of tariffs and fast changing geopolitical events present a complex picture for markets.

“In the UK, all eyes are on the outlook for growth. The forecast from the Office for Budget Responsibility, due out at the end of March, will tell us more about the government’s ability to meet its fiscal targets and give an indication of whether further tax rises may be necessary.

“The recent Bank of England base rate cut may be the last for some months as inflation rises. These factors will affect the outlook for UK equity and debt investment, as well as the UK economy.

“A more certain environment would help investors and their advisers make confident decisions on where to invest capital – it is not yet clear when this will come as they navigate what is set to be a year of change.”

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