Investors dumping Gilts pose a problem for UK Prime Minister Rishi Sunak

Derek Halpenny, head of research at Japan’s MUFG bank, said the 3-month moving average price of £12.8 billion was the highest since BOE records began in 1982. when the institutions positioned themselves around the time of the referendum on leaving the European Union.

Foreign investors are among the largest holders of UK government bonds, accounting for almost 30 percent of the market. Signs that they are shifting government bonds, known as gilts, could cause problems for the government in the next fiscal year, when the Treasury will exceed $300 billion.

At the same time, the BOE plans to sell £40bn worth of gilts it bought as part of its quantitative easing to stimulate the economy. At the height of the pandemic — the last time the government’s funding mandate was larger — the BOE was a net buyer of government bonds.

Mr Halpenny said the apparent loss of confidence in foreign institutions “does not wear well when looking forward to the supply of gilts to come”.

If worries about the outlook increase and markets “go back into a broad streak of risk aversion, sterling is likely to underperform or investors will demand a higher yield – or a bit of both,” he said.

The consequence would be a worsening of the cost-of-living crisis as a weak pound would push up the cost of imported goods and higher government bond yields would push up the cost of borrowing across the economy.