With the UK’s economic outlook growing uncertain, short sellers are targeting stocks they believe could be hit by higher costs and weakening consumer sentiment. Short selling involves borrowing shares and selling them, hoping to buy them back at a lower price if the stock falls.
As the government’s latest Budget is expected to raise employment-related costs, businesses are under pressure to pass these onto customers through price hikes, which could fuel inflation and reduce consumer spending. On 6 February, the Bank of England slashed its 2025 growth forecast to 0.75%, while inflation is expected to hit 3.7% this year, further rattling investor confidence.
Among the most shorted UK stocks as of 7 February, Kingfisher, the owner of B&Q, is a key target with 6.9% of its shares currently borrowed by short sellers. But it's not alone—energy firm Petrofac also faces scrutiny, with 7% of its shares out on loan. Other heavily shorted stocks include Domino’s Pizza (5.6%) and Ocado (4.7%).
A key factor influencing these short positions is weak consumer confidence, highlighted by GfK’s Consumer Confidence index, which showed sharp declines in January. Rising employment costs—set to increase in April due to higher National Insurance contributions—are expected to weigh heavily on businesses, forcing them to increase prices, potentially leading to a vicious cycle of inflation and lower spending.
In this environment, short sellers are betting that UK stocks, especially those reliant on consumer spending, will face continued pressure, with more de-rating and possible earnings downgrades.