Sector imbalances—skewed toward Financials, Consumer Goods, Energy, and Industrials—further amplified the narrative. These issues are significant, yet within these challenges lie untapped opportunities. 2025 must be a year of bold action and deliberate focus if the UK market is to reposition itself for future growth.
A Year of Opportunity Amidst Challenges
The UK stock market has underperformed compared to the US and other high-growth markets over the past decade. This should come as little surprise—investors naturally gravitate toward markets offering the greatest potential returns. Without addressing this fundamental challenge, the UK risks continued underperformance.
Diagram 1: Performance of UK vs US and Europe ex-UK
The Composition Conundrum: Why UK Equities Struggle
A key factor in the unpopularity of the UK market is its composition. Unlike the US, which attracts technology and high-growth companies, the UK remains dominated by financials and legacy industries. These sectors, while historically significant, do not reflect the new industries driving today’s global growth—AI, digital services, biotech, digital banking, and clean energy, to name a few. High-growth companies often choose markets where valuations are more favourable and where they can compete alongside their peers. Unless the UK becomes a competitive destination for these emerging and growth industries, the imbalance will persist.
Diagram 2: Comparison of largest sectors in the US and UK
Beyond Pension Fund Mandates: Incentivising Innovation
Proposals to force UK pension funds to allocate more to domestic equities are not the solution. Such measures could jeopardise returns for future pensioners without addressing the root causes of the UK market’s decline. Instead, we must create meaningful incentives for innovative and fast growth companies to list in the UK and for established businesses to embrace innovation and new technologies. Elevating sectors like digital services, biotech and clean energy is critical, as is ensuring that our market is globally competitive in valuations, governance, and visibility.
The reality is stark: the UK’s market has shrunk in relative terms because investors are voting with their capital and looking elsewhere. To reverse this trend, we need structural changes that make the UK market an attractive proposition for all investors—domestic and international alike.
Diagram 3: Comparison of % weight (size) of US and UK in FT Wilshire Global Equity Market Index over last 10 years
A Vision for 2025: Repositioning the UK Market
The UK equity market stands at a crossroads. To reignite interest and secure a brighter future for the UK market, we must take bold action to address structural imbalances and foster innovation in high-growth sectors. With the right reforms, the UK market can once again capture the attention and confidence of global investors. Without bold action the UK market will continue to decline.
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