An Outlook On UK Equity Markets
A Subdued Equity Market
The UK equity market has stayed quiet through most of 2025, though there are now visible signs of improvement as inflation cools and rates begin to fall. London has seen only a handful of IPOs this year – three deals above $50 million by September – and that still feels slow compared with pre-pandemic years. Much of this stems from the 2022–2023 period, when inflation and rate hikes raised the cost of equity and kept valuations low. Geopolitical uncertainty, from the war in Europe to trade frictions, has made investors cautious. Many companies continue to hold back rather than accept subdued pricing.
With IPOs thin on the ground, the market has relied mainly on follow-ons and block trades. Rights issues and accelerated placings have made up the bulk of activity in 2024–2025, though overall volumes remain weaker than before. In the first three quarters of 2025, equity fundraising on the London Stock Exchange was roughly half the value recorded a year earlier. Even so, deals have been completed successfully despite market noise, which shows that some investor appetite is still there. Fewer emergency capital raises also suggest companies are less pressured than during the rate-shock years – either because they cut leverage earlier or still have access to debt markets.
Valuation Hurdles and Shifting Investor Demand
Valuations remain the major hurdle. UK shares trade at a steep discount to global peers, with FTSE All-Share price-to-earnings multiples around 40% below the S&P 500’s. That reflects an index weighted toward mature sectors – energy, mining, and financials – and light on fast-growing tech names. Domestic concerns such as sticky inflation and unpredictable fiscal policy haven’t helped. Many overseas funds remain underweight in the UK, preferring the U.S. for its growth profile and liquidity. Depressed valuations have even encouraged take-privates by private-equity buyers, gradually shrinking the investable universe.
Institutional behaviour has shifted in parallel. Pension funds and insurers, once central to domestic equity demand, have steadily moved towards bonds and foreign holdings as part of de-risking strategies. That has left new issues more reliant on international investors whose interest can swing sharply with sentiment. At the same time, private equity and venture capital provide easier funding routes for growth companies, meaning fewer see the need to list.
Improving Outlook and Regulatory Reform
Even so, the tone is improving. Inflation is falling, the Bank of England has begun to cut rates, and volatility has eased. Many analysts now expect the IPO window to reopen properly in 2026. There is already a healthy pipeline of private-equity-backed firms, many bought in the ultra-low-rate era of 2020–2021 and now reaching their five-year exit horizon. The planned Shawbrook Bank IPO later this year will be closely watched – if it performs well, confidence could spread quickly.
Regulatory reform may also lift activity. The Financial Conduct Authority is merging the premium and standard listing segments into one and allowing dual-class share structures to qualify for FTSE indices. These changes should make London more appealing to founder-led and high-growth firms. Updates to prospectus rules – including raising the threshold for when a full prospectus is required from 20% to 75% of existing share capital – are set to make follow-on raises faster and cheaper.
Broader Capital Market Context
Beyond equities, other parts of the capital markets have been much stronger. Corporate debt issuance has picked up sharply from 2023 as credit spreads tightened and investors sought yield. The government, meanwhile, continues to issue gilts at near-record levels – around £300 billion this fiscal year – mainly at longer maturities between ten and thirty years. That has pushed long-term yields higher and widened the term premium. Private credit has expanded quickly too, offering borrowers flexible funding but raising questions about transparency and potential systemic risk. With rates drifting down towards 4%, refinancing activity is expected to increase, although any flare-up in inflation or tariffs could slow the easing cycle.
Across the Atlantic, capital markets have already staged a full recovery. U.S. equity issuance is back in line with long-term averages, helped by successful IPOs such as Reddit and Lineage Logistics and by a run of sponsor-backed deals. Debt markets remain strong, with investment-grade spreads at multi-decade lows and heavy demand for high-quality paper. The contrast underlines London’s challenge: a smaller investor base, fewer growth sectors, and lower liquidity.
Conclusion
Still, sentiment toward the UK is quietly turning. With inflation easing, reforms advancing, and a steady pipeline of companies preparing to list, the ingredients for recovery are there. If early offerings perform well, London could yet re-establish itself as a credible venue for growth capital and long-term investment.
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