The UK equity market emerged as an unexpected standout in 2025 as global investors reduced exposure to U.S. assets and shifted capital toward international markets, according to Barclays in its European Equity Strategy annual review.
Barclays noted that global equities posted strong gains for a third consecutive year, with the MSCI AC World index rising 21%. Market leadership moved away from the United States, as roughly 70% of country indices outperformed U.S. stocks over the year.
The bank attributed this shift to growing doubts around U.S. exceptionalism and a renewed emphasis on global diversification among investors.
The rotation gained momentum early in the year following a sharp revaluation of U.S. mega-cap technology stocks tied to artificial intelligence. Concerns around AI monetisation, heavy capital spending, and rising competition triggered weakness in U.S. equities and the dollar, accelerating capital flows into overseas markets.
As a result, equities across Europe, the UK, China, and Japan benefited from renewed investor interest. Barclays said European stocks outperformed U.S. equities by 16% in dollar terms, marking the widest gap since 2006.
This outperformance was largely driven by strong gains in European banking stocks and a pronounced decline in the U.S. dollar. While returns were more mixed in local currency terms, dollar weakness significantly boosted performance for non-U.S. markets, including the UK.
Within Europe, the UK stood out given its starting point. Barclays described UK equities as “deeply unloved” at the beginning of 2025, yet the market still delivered mid-teen gains in local currency terms. This placed the UK broadly in line with Germany and ahead of France, which lagged due to political uncertainty.
Currency movements played a central role in shaping relative returns. Barclays explained that Europe’s outperformance versus the U.S. was far more pronounced in dollar terms than in local currencies, as the sharp fall in the dollar amplified gains for UK and European assets held by global investors.
Despite the strong market performance, investor flows into UK equities remained negative. UK equity funds saw net outflows of $33.7 billion in 2025, making the UK the only major region to experience sustained withdrawals throughout the year.
By contrast, European equity funds excluding the UK attracted $88.8 billion in inflows, while emerging market funds drew $118 billion. Barclays said this divergence highlights how UK equities performed well even as investors continued to reduce exposure.
Sector composition also supported UK performance. Financial stocks, particularly banks, were among the top performers in Europe during 2025, benefiting UK indices with heavy exposure to the sector. Value stocks outperformed across Europe, while gains in the U.S. remained concentrated in growth and technology shares.
Barclays added that the UK’s equity gains came amid a volatile backdrop marked by tariff shocks, geopolitical tensions, and shifts in monetary policy. Periods of sharp declines in U.S. equities, bonds, and the dollar further accelerated the rotation toward international markets, including Europe and the UK.
