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Lloyds Bank (LLOY.L) is to pull billions of pounds from Britain’s stock market in a major blow to Rachel Reeves’s efforts to boost the UK economy.

Scottish Widows, the bank’s pensions division, plans to cut its exposure to the UK and move more money into better-performing markets such as the US.

It is a blow to the Chancellor, who has been encouraging pension funds to invest more in British stocks to boost both the market and the economy.

The Telegraph previously revealed that Scottish Widows, which manages £230bn, had refused to sign up to an industry pledge to invest a certain amount of funds into Britain.

The pact, known as the Mansion House Accord, will see 17 of Britain’s largest workplace pensions providers invest at least 5pc of funds held in their defined contribution schemes into UK stocks by 2030.

At the time, Chirantan Barua, Scottish Widows’ chief executive, said: “We will continue this investment approach to support our communities where it generates strong returns for pensioners.”

Scottish Widows is planning to lower its exposure to UK stocks in its highest growth fund from 12pc to 3pc, the Financial Times reported. The Edinburgh fund manager also plans to cut UK investments in its most conservative fund from 4pc to 1pc. It aims to complete the changes by January 2026.

The overhaul means Scottish Widows’ £72bn default workplace pensions fund will take a “market weight” approach, meaning the amount of money allocated to each country will depend on the size of their stock market.

In practice, this will mean less investment in Britain. At the moment, Scottish Widows has more of its assets invested in the UK than other markets relative to the size and value of Britain’s economy. Of its £72bn workplace pension pot, it invests £5.5bn, or 7.6pc, in Britain.

The decision to cut back comes after an extended slump for the London Stock Exchange. The relative value of the UK’s stock market has fallen sharply over the past two decades, from around 11pc of the MSCI World Index in 2000 to 4pc today.

Big investors have increasingly pulled away from British stocks because of dwindling returns since the financial crash of 2008. Conversely, American stock markets have surged.

Pension funds had 53pc of their assets invested in UK stocks in 2000 but that has fallen to 6pc today, according to a report from New Financial.

Scottish Widows declined to comment.