A person looks out from a rooftop garden in the City of London business district with Gherkin skyscraper seen behind, as Britain’s Chancellor Rachel Reeves faces tough financial decisions ahead of her second budget statement next week, in London, Britain, November 21, 2025. REUTERS/Toby Melville

By Nell Mackenzie

LONDON (Reuters) -Stock-picking hedge funds now have the biggest short positions since 2023 on UK-based stocks exposed to the domestic economy, according to a Goldman Sachs client note.

The group bulked up on these positions ahead of Wednesday's presentation of the highly-anticipated budget, said the note that was sent to clients on Tuesday and seen by Reuters on Wednesday.

Finance minister Rachel Reeves is expected to outline tens of billions of pounds in tax increases.

Since late October hedge funds have been selling large amounts of stocks of companies that primarily operate, offer products and generate revenue within the UK, the note said.

A short position represents a bet that asset prices will fall, whereas a long one is a wager that they will rise.

The budget could deliver nearly 35 billion pounds of savings, Deutsche Bank said in a note on Wednesday. While higher taxes may generate more revenue for the government, they can also slow the domestic economy, economists say.

The number of hedge fund bets that UK-exposed stock values will rise compared to those that are short has shrunk to its lowest level since mid-2023, said the Goldman Sachs note.

Hedge funds had, since July, been mostly buying firms that operate in Britain but sell their goods globally. However, looking just at November, hedge funds have mostly sold these stocks as well, Goldman said.

Hedge funds making long and short bets on stocks in the UK and Europe more broadly, are down around 3% for the month so far, said the note.

Trading losses came from bets on industrials, communications and UK-based companies, Goldman said.

So far this year, stock pickers focused on Europe have returned 8.5% whereas Asia and U.S.-focused funds are up 21% and almost 12%, respectively.

(Reporting by Nell Mackenzie; Editing by Dhara Ranasinghe and Tomasz Janowski)