After years of lagging behind its European peers, Britain’s stock market is starting to shine again—drawing renewed interest from foreign investors enticed by undervalued stocks, lighter
regulation, and the potential of a UK-U.S. trade deal.
The FTSE 100 has climbed nearly 10% this year, recently hitting record highs and outperforming the STOXX 600, which is up 7.5%. London’s flagship index has now outpaced its European counterpart for six consecutive weeks—its longest winning streak since late 2022, when a weak pound boosted overseas earnings for UK-listed multinationals.
Recent developments are adding fuel to the rally. The UK’s financial regulator is introducing new rules to enhance the appeal of Britain’s capital markets. At the same time, Chancellor Rachel Reeves is urging the financial sector to promote UK stocks more positively to local investors as part of efforts to revive the sluggish economy.
For international investors, sterling’s strength in 2025 makes UK equities even more attractive. Asset managers say sentiment toward the UK is improving, especially among institutional players who had previously avoided British assets in the wake of Brexit.
“We’re seeing major global investors return to the UK,” said Justin Onuekwusi, CIO at St. James’s Place. “This includes non-UK endowments, pension funds, and wealth managers who were heavily underweight on UK equities post-Brexit.”
In dollar terms, the FTSE 100 is up nearly 18% so far this year—on track for its strongest performance since 2009—compared to a 6% gain for the S&P 500, which has also reached record highs.
While a stronger pound typically dampens profits for FTSE firms (since about 80% of their revenue comes from abroad), the index’s large share of defensive stocks—like healthcare, utilities, and supermarkets—provides stability in volatile times. Companies such as AstraZeneca and Tesco help shield the FTSE from macroeconomic swings. Meanwhile, resource-heavy names like Anglo American and BP benefit from rising commodity prices in oil, copper, and gold.
Another factor in the UK’s favor: less trade uncertainty. A trade agreement with the U.S. is in place, while the EU faces looming tariff threats if a deal isn’t reached by August 1.
“Tea and biscuit” reliability
“The UK market is like a comforting cup of tea and biscuit in an unpredictable world,” said Dan Coatsworth, investment analyst at AJ Bell. “It’s not flashy, but it offers reliability and consistency.”
UK stocks have long been undervalued, especially since the 2016 Brexit vote, which discouraged new listings and reduced merger activity. But that valuation gap is narrowing.
The FTSE 100’s forward P/E ratio has risen to 12.5—its highest in five years—while the STOXX sits at 14.1, the smallest differential in 18 months. Meanwhile, the S&P 500 trades at a far steeper 23 times earnings, a sharp jump from the near parity it held with the FTSE a decade ago.
Michael Stiasny, Head of UK Equities at M&G Investments, said, “We’re beginning to see the underperformance of UK equities—especially versus the U.S.—start to reverse. There’s still a long way to go, but we’re moving in the right direction.”
Sterling is now near a four-year high against the dollar but has weakened slightly against the euro this year—offering a boost to UK exporters. The EU remains the UK’s largest trading partner, accounting for 41% of exports, with the U.S. in second place at 22%.
Not all smooth sailing
Still, challenges remain. Britain’s economy is under strain, inflation continues to exceed the Bank of England’s 2% target, and both business activity and employment are slowing.
Barclays data shows that UK equities have experienced $20 billion in net outflows in 2025. However, those outflows have tapered off in recent weeks. In contrast, European equities have drawn in $13 billion this year, though the pace is slowing.
Sebastian Raedler, head of European equity strategy at Bank of America Merrill Lynch, offered a more cautious view: “The FTSE’s recent gains largely reflect currency moves and broader European trends. A modest 2% outperformance isn’t exactly headline-making in today’s environment.” Photo by Kaihsu Tai, Wikimedia commons.