2025: “All’s Well if It Ends Well” (With Apologies to William Shakespeare) 

In my experience, plays or films that start off badly, end well. But there is an exception. Greek tragedy starts off really, really badly and just when you think it cannot possibly get any worse, it does. In fact, it doesn’t just get worse. It gets a whole lot worse.  

Now you are possibly thinking, what on Earth has all this got to do with the outlook for capital markets in 2025? Well, as we start the year, global capital markets are pretty weak. And, of these, the UK is in a particularly bad state.   

If you look at the UK stock market there are hardly any initial public offerings (IPOs) and many public companies are de-listing, having been acquired by other companies or by private equity.  Indeed, the UK, once one of the leading markets in the world in which to raise capital, looks like it is in decline. Over the last 10 years, the number of listed companies has dropped by almost a third. And the trend is not good. Recently, we heard that Ashtead, a large tool rental company, is planning to move its primary listing from the FTSE 100 to the United States. And London’s biggest new listing of 2024, the French media company that is behind the Paddington film series, Canal+, saw its shares collapse 22% on its first day of dealings. While this is arguably not a great advertisement to those considering a UK listing in 2025, London might at least take some comfort from the fact that the company chose the UK rather than France to list.   

Commentators and industry practitioners have suggested many reasons why the UK stock market is in decline, particularly relative to the United States. Companies mention the attraction of gaining a higher valuation in the United States. Some blame UK Pension Trustees who, given personal liability, may feel compelled to limit their risk profile and shun greater equity exposure in their investment criteria. Others say the UK’s regulatory environment is to blame. Many institutional shareholders consider large segments of the UK market, such as its financial services and consumer-led sectors, to be un-investable due to heavy regulatory intervention. The Financial Conduct Authority (FCA) and the Competition and Markets Authority (CMA), who some feel with their highly charged announcements and extensive press briefings are on a crusade to destroy listed companies’ profitability where they can, come in for particular criticism. And if the new president of the United States decides to loosen regulation rather than tighten it, London’s relative attractiveness as a place to list is only going to get weaker and New York’s stronger. 

If that’s true, then it’s not good for the new Government’s growth agenda, let alone the financial and professional services industry that has been a significant contributor to the GDP and tax revenues of the country. If companies and investors are shunning the UK for the United States, then so too will the professional and financial services people that support them.  

But it is not all bad. As the CEO of the London Stock Exchange highlighted in a recent media profile, London is still a major centre for capital.  And she is correct. It is also a great place for global businesses given its time zone that can include most geographies within its working day. And it has a highly respected legal system. It’s just that having had a clear lead, behind New York, over every other market in the rest of the world for the last 40 or so years, it increasingly feels like just one of many.  

Like the metaphor of the film or the play, if we think UK capital markets are starting the year in a bad state, how about the outlook? Will things get better? Will there be a happy outcome? Or will it be like a Greek tragedy and get a whole lot worse? 

The new UK government has had a shock. Whether out of ideological intention or economic naivety, the measures it has taken have done a lot to depress stock market sentiment and the outlook for corporate profitability and investment. Many companies are now readjusting their plans to deal with the significant increase in Employers’ National Insurance costs.  With continued pressure on top line revenue growth, if companies cannot offset this higher cost, profits will fall and there will be less available for re-investment. Indeed, recruitment firms, which are often a lead indicator of an economic downturn, report a sharp decline in new hires that might otherwise have supported corporate growth plans. 

 However, there are some positives. Relative to two of its other European rivals, France and Germany, the UK doesn’t look so bad. Some investors consider these countries to be in an even worse state than the UK. While domestic politics are affecting market sentiment in both, France’s inability to agree on a much-needed path to fiscal consolidation is of particular concern. And, perhaps not surprisingly, these uncertainties are leading many European investors to look at the UK as a potential home for their funds. 

A weak end to 2024 also does not necessarily mean that market activity won’t pick up in 2025. It is likely that Government consumption will grow and there are signs that UK savers are starting to become less risk averse with net inflows into the savings industry reversing a trend of 41 months of consecutive outflows.  

So, I leave it with you to decide whether this is a play or film with a happy outcome or a Greek tragedy. Oh, and I should have mentioned that when Greek tragedies reach a finale of complete and under disaster, there is a God that comes along to sort out the mess. Classicists refer to this as “deus ex machina”.  We will not be so lucky, so let’s hope for a happy outcome.