The Great British sell-off: what happened to the UK stock market?
Rose is editor at Financial Interest. With over 15 years of writing experience and a passion for personal finance, she focuses on making money less intimidating, more interesting, and occasionally even fun 🙌
Last updated 15th July 2026
13 min read
The London Stock Exchange is older than the country of the United States. For much of its history, it was also more valuable than the United States – more valuable, in fact, than most of the rest of the world combined.
Back in 1815, Britain and its empire accounted for an astonishing 82% of global market capitalisation. America, that future colossus of world finance, comprised a mere 13%.
If you'd told a London merchant banker back then that the young republic would one day dwarf Britain so completely, he'd have laughed you out of his counting house.
But, as some ancient philosopher probably once said, there is nothing as permanent as change.
Today, the UK accounts for roughly only 3-4% of a typical global index, down from around 10% as recently as the late 1980s. The US, meanwhile, has ballooned to around 60%.
So how did it come to this?
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Jurassic Park, plc
While Silicon Valley was busy inventing the companies that would reshape the global economy, the FTSE was doubling down on banks, insurers, oil majors and tobacco companies: reliable, deeply unglamorous businesses that fund managers have unkindly but not entirely unfairly dubbed the "Jurassic Park" of stock exchanges.
Tech companies today account for roughly 3% of the FTSE 100 – the index that tracks the 100 largest publicly traded companies on the London Stock Exchange – compared with around a third of the S&P 500.
And without the benefit of the sector driving most of the extraordinary gains, the FTSE has grown by just 113% over the past 20 years in pure price terms, compared with 541% for the S&P 500.
But while the US attracts those chasing growth, the UK market long appealed to a different kind of investor: those who want steady, reliable income paid out in the form of dividends. In fact, the UK boasts one of the highest dividend yields of any market – more than double that of North America.
The problem is that the two approaches have very different consequences.
US companies pump money back into expansion, research, and new products, handing relatively little back to investors in income. UK companies do the opposite. The result is a stock market that has filled up with mature, cash-generative businesses in slow-growing industries, looking longingly from the sidelines at the AI hyperscalers and whatever the "lunar economy" turns out to be.
The stock market everyone loves but us
Though the UK market probably isn’t set to capture any of the big growth stories of the decade, it’s still been putting up some decent numbers recently.
In 2024, the FTSE 100 delivered a total return of 9.7% including dividends – its best performance since 2021. In 2025, it rose more than 20% across the year, even edging out the S&P 500, which returned close to 17%.
The FTSE all-share – an index which captures 600 listed companies and 98% of the total UK stock market cap – has also been having its time in the sun, returning almost 24% in 2025.
Good news for the UK at last?
Not quite. The vast majority of those gains went entirely to foreign investors.
Because while we might be a nation of proud patriots when it comes to queuing, complaining about the weather, and apologising unnecessarily, the same definitely can't be said for our enthusiasm for investing in our own backyard.
At the last count, just under 12% of UK-listed shares were actually owned by UK investors – a figure that's been in near-constant freefall for decades. In the 1960s, domestic investors owned 54% of the market. By the 1990s, that had already slipped to under 20%.
Today, overseas investors own a record 58.8% of UK-listed stocks, up from 30.7% in 1998, with the rest mostly owned by governments and banks.
This stands in stark contrast to other major economies. Around 80% of US equities are held by domestic investors; in Japan the figure is almost 70%, while in France it's around 50%.
So who are these foreign investors, and why do they own so much of Britain?
As is so often the case in modern finance, the trail leads to America. According to the ONS, US investors held £693.9 billion of UK-listed shares in 2024, the largest foreign stake of any country and more than half the total amount owned by all UK investors combined.
But this isn't Warren Buffett poring over FTSE annual reports and spotting hidden value. The biggest holders of UK shares are passive giants like BlackRock, Vanguard and State Street, who own British companies not out of any particular enthusiasm for them, but because the UK is a constituent of the indexes their funds track.
Every time an American opens a retirement account and buys a global or European index tracker, a small slice of it ends up in Shell, AstraZeneca, HSBC, and yes, maybe even Greggs.
On the other side of the pond, they also simply have a bigger appetite for investing in shares than us Brits do. Two-thirds of Americans invest in the stock market, compared to 23% of people in the UK – the lowest of any G7 nation.
And while our own enthusiasm for the home market has been waning, the way we invest has transformed. Back in the 1960s, when stock markets were largely national affairs, information was scarce, and if your broker or bank manager recommended shares in a solid British company, you bought them.
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In that context, choosing to concentrate your money in the UK – a country with a market cap only slightly larger than Switzerland – starts to look less like patriotism and more like eccentricity.
But retail investors are the less important part of the story.
Britain sits on the fourth-largest pool of pension capital in the entire world – over £3 trillion of retirement savings – and yet the people managing that money have also largely stopped investing it in UK-listed companies.
Over the past 25 years, many pension funds have dramatically cut their UK exposure from over 50% to under 8% – a structural withdrawal of an enormous pool of domestic capital. In this sense, Britain is again an outlier – in Australia, domestic shares account for roughly 45% of pension funds' total equity allocation; in New Zealand, 42%; in Canada, 22%.
This can partly be accounted for by defined benefit pensions, where an employer guarantees a fixed income in retirement. These schemes are largely closed and winding down, their job now being to pay out rather than grow. For that purpose, bonds are simply more suitable than equities.
But 55% of all UK pension assets are still held in DB schemes, meaning their conservative, bond-heavy behaviour continues to drag down the headline figures.
And defined contribution fund managers, for their part, have made their own choices. With a legal obligation to maximise returns for savers, and with US and global markets significantly outperforming the UK for two decades, the money has followed the returns.
On the whole, it's rational behaviour that has produced, in aggregate, a remarkable result by any international standard: the only major economy in the world whose pension funds have actively divested from their own home market.
London's burning
Taken as a whole, it’s easy to see how the whole thing becomes a doom loop: the UK market underperforms because it lacks capital, it lacks capital because investors prefer better-performing markets, and it continues to underperform because it lacks capital.
And in turn, this causes another big problem for UK-listed firms: they're cheap.
Whether a stock market is considered discounted or expensive is often determined by looking at its price-to-earnings ratio. This means taking a company's share price, dividing it by its annual earnings per share, and that number tells you how much investors are willing to pay for each pound of profit. A P/E of 15x means investors are paying £15 for every £1 of earnings; a P/E of 30x means they're paying £30.
On that metric, at the end of 2025, the FTSE 100 was trading at a P/E ratio of 14.87x. In contrast, the US large-cap index sat at around 25.38x, while the German DAX was 18.93x.
In other words, investors were paying around 70% more for a dollar of American earnings – and roughly 27% more for a euro of German earnings – than they were for a pound of British ones.
And while a bargain can be good news for investors, it’s less thrilling for businesses.
To raise the same amount of capital as an American rival, a UK-listed company must issue significantly more new shares, diluting existing shareholders more heavily and making ambitious acquisitions or expansion plans significantly harder to fund.
It also means there’s less incentive for companies to list in the UK at all.
Stock exchanges around the world compete with one another to entice – and keep hold of – the best companies to sell shares on their markets. But low domestic valuations mean a company can instead choose to list elsewhere, like New York, and immediately be worth more.
UK companies trading at a discount have also become increasingly appealing to private equity firms looking to acquire them, restructure or grow them, before re-listing in the US at a profit or removing them from the stock market entirely.
Taken together, this means around a third of companies listed in the UK a decade ago have since vanished, with more than half swallowed by overseas buyers. In 2024, the LSE experienced its largest outflow since the financial crisis, with 88 companies de-listing, followed by a further 50 in 2025.
Many of those departures have been painful to watch.
Cambridge-based chip designer ARM – the largest and most valuable tech company to ever come out of the UK – chose the Nasdaq over London in 2023. Earlier this year, Fintech giant Wise moved its primary listing across the Atlantic in search of a bigger investor base. Other well-known names like JustEat and Tui have followed suit, while Deliveroo – having listed in London in 2021 at a valuation of £7.6 billion – watched its share price slowly wither before being snapped up by American rival DoorDash for £2.9 billion in 2025.
Similarly, Cambridge-founded AI cybersecurity company Darktrace listed on the LSE in 2021 and quickly became one of Britain's most celebrated tech success stories – before US private equity giant Thoma Bravo acquired it for $5.3 billion in 2024 and wiped it from the London market.
And there are wider economic consequences, too.
Companies listed in the UK invest inside the UK. And when one leaves, we no longer benefit from any future growth. Strategic decisions – where to expand, where to hire, which suppliers to use, where to base the next phase of expansion – are now made with someone else's interests in mind.
Then there’s the loss of tax revenues – around £93 billion annually for FTSE 100 companies alone – high-skilled jobs, intellectual property, and the prestige of being the kind of place that ambitious, fast-growing companies choose to call home.
Every high-profile departure chips away a little more at London's claim to be the financial capital of the world, making it slightly less likely that the next generation of great companies will look at the UK and see their future there.
Is it all over for the UK stock market?
The government, at least, doesn’t appear to think this patient is beyond saving.
This year, they launched an awareness campaign, Invest for the Future, designed to help cash-heavy savers understand the role that investing can play in long-term wealth creation.
The irony of that campaign being fronted by a red squirrel – whose UK population suffered a catastrophic collapse at the hands of the North American grey squirrel – is apparently lost on them.
Alongside this, the cash ISA allowance for most people is being cut from £20,000 to £12,000 from 2027, again in a bid to coax savers towards stocks and shares.
One of the hopes is that once people jump on the investing bandwagon, more of this capital will trickle into the UK market, helping to create a better economic environment for domestic companies.
On the pensions front, some experts have argued fund managers should be strong-armed into investing more in UK equities in a bid to prop up the market. Research suggests that, surprisingly, most savers would be in favour of this even if it meant lower returns.
The government has instead settled on more of a middle-ground, with plans to nudge pension funds toward investing 10% of their portfolios in UK private assets, like infrastructure and early-stage British companies – voluntary for now, but with the government reserving powers to make it mandatory if funds fall short. If delivered, that could mobilise around £50 billion into domestic investments, potentially creating the FTSE-listed companies of tomorrow.
And as of November 2025, newly-listed companies benefit from a three-year exemption from stamp duty reserve tax – a 0.5% charge levied on UK share purchases that has no equivalent in the US or much of Europe, and which has long made British shares fractionally more expensive to trade than those of other major economies.
Whether any of these tweaks will truly create a deeper, more engaged pool of domestic investors – the one thing that might actually close the valuation gap and give large multinationals with no sentimental attachment to the UK a reason to choose London over New York – remains to be seen.
But pessimists would also argue that none of these initiatives gets to the heart of the more home-grown problems.
The UK is actually remarkably successful at starting companies, ranking sixth in the world for innovation – ahead of every major European economy – and produces the most influential scientific research in the world.
The issue is that Britain is fast becoming an "incubator economy" – world-class at generating ideas, but unable to retain the companies built from them long enough to see them scaled, listed, and domiciled here.
US firms are 40% more likely to secure venture capital in their first five years than British ones. And when UK companies do reach the stage where they need serious growth capital, they increasingly can't find it at home – more than 60% of late-stage funding in the UK now comes from overseas investors.
It's arguably those conditions that mean the UK isn't building the next generation of AI infrastructure, the next wave of biotech breakthroughs, or a permanent human colony on Mars.
Then again, maybe that last one is for the best.
Financial Interest provides guidance, not advice. If you’re unsure about anything, speak with a qualified adviser. When investing, your capital is always at risk. Past performance does not guarantee future results.
