House builders and consumer groups are coming under pressure from short sellers as investors bet on a downturn across both sectors in the coming months.

The number of London-listed firms with over five per cent of their shares held short more than doubled from 27 to 60 in the three months to October, according to the latest analysis from law firm White & Case, while companies facing short positions of larger than 10 per cent rose to 14 from two.

Short positions are financial bets made by investors, often hedge funds, who predict that a company’s stock will decline. Investors borrow shares at their current price before selling with the aim of buying them back at a lower price in order to make a profit.

House builders, building materials manufacturers, and retail and consumer groups have borne the brunt of the pressure from investors. Builders accounted for five of the 14 companies with the highest disclosed short positions, led by Vistry, where investors currently hold short interest of 16.7 per cent.

This was closely followed by brick maker Ibstock, with investors holding a position of 12.9 per cent, after it was forced to lower its earnings target in response to “deteriorating” trading conditions.

Analysts have pinned the uptick in short positions on soaring material and construction costs and falling profit margins, which have forced many firms in the sector to forecast losses.

Sticky inflation and changes to consumer confidence caused by the rising cost of living also impacted London-listed retail companies. Investors held a position of 11.1 per cent in WH Smith, and 9.8 per cent in Ocado at the end of October.

Short-selling surge

Lawyers at White & Case urged firms to become aware of the increase in short-selling, encouraging them to “proactively engage with investors and analysts” before an alternative analysis of performance is released to the market.

“Shorting… has now reached new highs in UK public markets,” said Patrick Sarch, head of UK public M&A at White & Case.

“As short-selling becomes an increasingly prominent feature of the market, it should be treated by boards as a mainstream risk…with companies actively planning for, and not just reacting to, these pressures.”

Opportunities for short sellers have become increasingly attractive this year, as valuations have come under pressure from heightened geopolitical tension, market uncertainty and fears over AI-related disruption.

A number of housebuilders have slashed their profit targets and warned of a slowdown as they are buffeted by rising interest rates, a slowdown in the property market and rising red tape around building. In its assessment of the Budget last week, the Office for Budget Responsibility said housing delivery will fall to 229,000 this year, 221,000 the following year and to 219,000 in the year 2027-28.

The OBR had previously thought housing construction would pick up in this year, to 252,000, but said it has downgraded this outlook owing to rising costs of building and the burden of red tape on builders.

Retail groups are also set to feel the pressure of rising inflation. According to the Bank of England’s forecasts, inflation is set to top four per cent early next year. The Bank is set to hike interest rates this week for the first time in three years, in a move likely to squeeze spending consumers’ spending power further.

Sarch said he expected more companies to be exposed to short-selling in the run up to the end of 2026, but said “many will bounce back successfully”.

“At a macro level, shorting continues to play a healthy role in capital markets, supporting price discovery, liquidity, transparency and market discipline,” he said.

Regulatory overhaul

While broader macroeconomic problems were identified as the primary cause for the uptick in short-selling, some of the increase “may also reflect changes” made by the City watchdog, White & Case said.

Under the old regime, when any single fund built a short position of 0.5 per cent or more in a UK company, the Financial Conduct Authority (FCA) would publish both the fund and the exact percentage. Lower positions were reported privately.

Funds typically faced scrutiny and ran the risk of being the aim of short squeezes, leaving many to cap their shorts at 0.49 per cent in a bid to avoid being on the list, while some opted not to short UK firms altogether.

In July 2026, the FCA overhauled the rules, no longer publishing the names of individual short sellers, instead only publishing the single, net short figure for each company. The removal of the spotlight enabled short sellers to take larger positions.