UK stocks trade at 12.1 times forward earnings, against 19.4 for US stocks and 17.9 for the world index, and MSCI UK yields 3.17% against 1.11% for MSCI USA (MSCI factsheets, 30 September 2026). It trailed the world in euros for most of the last decade, though. Since 2015 the London market has lost more than a third of its listed companies, and ten-year gilt yields recently reached their highest level since 2007. The numbers support a modest value and income tilt for a euro-based investor, and little more. This is general information, not personal advice.
How Cheap Are UK Stocks?
On MSCI’s figures, the UK sits 37% below the US on forward earnings, 32% below the world and 15% below Europe (calculated from MSCI’s multiples).
| Index, 30 Sep 2026 | Forward P/E | Trailing P/E | Dividend yield |
|---|---|---|---|
| MSCI UK | 12.1 | 14.0 | 3.17% |
| MSCI Europe (about 22% UK) | 14.2 | 16.7 | 2.87% |
| MSCI World | 17.9 | 22.7 | 1.52% |
| MSCI USA | 19.4 | 25.4 | 1.11% |
The cyclically adjusted measure widens the gap. Siblis Research puts the UK CAPE at 19.6 on the same date, against 35.9 for the US.
Standard Chartered’s October 2026 brief puts the UK at about 12 times forward earnings, level with a historic average of 12. UK stocks are cheap next to other markets and roughly average next to their own past.
Sector mix is the obvious explanation, but the most detailed study available says it accounts for a minority of the gap. Rathbones ran a regression across more than 1,000 global stocks (first published in January 2024, updated in November 2025) and finds roughly two-thirds of the gap to the US survives adjustment for sector, growth and quality. Against Europe, the gap largely disappears. Rathbones sells UK-weighted funds, so read it as one data point.
Investors also expect slower growth. Consensus has UK earnings growing 10% over the next twelve months, against 21% for global equities (Standard Chartered).
The Record: Mostly Lagging, One Strong Year
MSCI’s own euro conversions give these returns, net of withholding tax, to 30 September 2026 (UK, USA).
| Net return in euros, % | 2023 | 2024 | 2025 | YTD to 30 Sep 2026 | 5 years, annualized | 10 years, annualized |
|---|---|---|---|---|---|---|
| MSCI UK | 10.2 | 14.7 | 19.1 | 11.9 | 13.0 | 8.5 |
| MSCI World | 19.6 | 26.6 | 6.8 | 15.6 | 12.3 | 12.7 |
| MSCI USA | 22.2 | 32.9 | 3.4 | 16.2 | 13.3 | 14.6 |
The UK trailed the world in every period shown except 2025 and the five-year window that takes it in. That year banks gained from higher rates, defense stocks such as Rolls-Royce and Babcock roughly doubled, and gold and silver miners rode a gold price up more than 60% (StoneX). One strong year after a long stretch of lagging is a poor basis for calling a trend.
In dollars, MSCI’s gross figure for the UK in 2025 is 35.1%, against 19.1% net in euros. Currency explains much of that gap: sterling rose against the dollar that year while falling more than 5% against the euro (Reuters). The UK gave no crisis protection either: MSCI UK fell 59.1% from peak to trough ending 9 March 2009, against 59.4% for the world.
What You Actually Own
MSCI UK at 30 September 2026 is 27.1% financials, 14.0% consumer staples, 12.9% industrials, 12.8% health care and 12.6% energy, with information technology at 0.9%. That sector gap is why 2025 diverged from Wall Street. Ten companies make up 53.9% of the index, led by HSBC at 11.1%, Shell at 8.9% and AstraZeneca at 8.0%.
A FTSE 100 holding is less British than it sounds. Over four-fifths of FTSE 100 revenue came from outside the UK, per FTSE Russell data at 30 September 2022, the latest primary figure. A weaker pound lifts the sterling value of those overseas profits, and a stronger pound trims it. The FTSE 250 is far more domestic, at about 55% of sales overseas.
The earnings base is narrow. Financials, oil and gas, and miners are expected to generate between 54% and 62% of FTSE 100 pre-tax income this year, depending on the source (AJ Bell in July 2026, and press consensus figures).
The Income Case
AJ Bell’s third-quarter dashboard, with data to mid-September 2026, puts the FTSE 100 forward yield at 3.3%. Buybacks add to that: AJ Bell’s June dashboard estimated total 2026 cash returns at £124.8bn, about 4.7% of FTSE 100 market value, with £46.7bn of planned buybacks alongside £90.3bn of expected dividends.
The 28 October Budget raised no dividend tax, per press summaries. The income comes from the same banks, oil companies and miners that dominate the index, so those sectors can cut payouts together.
Why It’s Cheap: The Risks
A shrinking market
The number of UK-listed companies fell from 2,429 in 2015 to 1,534 in May 2026, a decade low (Fortune, citing LSE data). Schroders and easyJet are among this year’s departures, both through agreed US takeovers. In the first half of 2026 London had 7 IPOs raising $780m, while the US had 72 raising $128bn (Fortune).
A thin domestic bid
Overseas investors own a record 58.8% of UK quoted shares (ONS, 2024 data). Calastone reported that UK investors pulled a net £858m from equity funds in September 2026, the 15th outflow month in 16, across all equity funds rather than UK ones alone.
The macro backdrop
Ten-year gilt yields reached about 5.4% to 5.5% in late September and early October, the highest since 2007, and stood at 5.31% on 28 October (press reports). The Bank of England held Bank Rate at 3.75% on 17 September, with three of nine members voting for a hike. EY’s pre-Budget outlook put fiscal headroom at £11.3bn, down from £23.6bn in March, and EY names falling equity prices as the largest driver of its adverse scenario. High yields and thin headroom undercut the cheap, defensive income that draws investors to UK stocks.
What argues the other way
Much of the shrinkage is cash takeovers at premiums, which pay the people who hold the shares. Peel Hunt counted 42 live bids worth £74bn in October (City AM, 12 October 2026), against £35bn across 40 bids in all of 2025. AJ Bell reports record aggregate earnings forecasts for 2026 and 2027.
- Alex Wright of Fidelity Special Values, a UK fund, put mid-caps at 11.4 times forward earnings in December 2025.
- Panmure Liberum, a broker, expects further re-rating, from 13.1 times for the FTSE 100 against 22.4 for the S&P 500 in December 2025.
- Julia Hoggett, CEO of the London Stock Exchange, which sells listings, describes the “largest pipeline for IPOs since 2005”.
- Charles Hall of Peel Hunt, a broker, warns of a “material depopulation” of the UK market.
- Simon Gergel of Merchants Trust, a UK income trust, called domestic banks and miners potential value traps, and has since bought Lloyds and Barclays.
Who UK Shares Might Suit
Income-oriented investors
A yield above 3% from large, globally earning companies, plus buybacks, suits a portfolio that already holds plenty of US growth. The dividend investing guide covers building around income.
Investors who already hold a world tracker
A world index holds UK stocks at a small weight, so a tilt means adding a slice on top. With 0.9% in technology, that slice behaves differently from the US-heavy remainder.
Patient value investors
A 12 times multiple against 19 leaves room for error, and cash bids at premiums pay holders while they wait. It also leaves room for the UK to stay cheap, as it has since the discount opened after the 2016 Brexit vote.
For any of them, the record points to a tilt sized so that another lagging decade wouldn’t hurt.
Owning UK Shares as a Euro Investor
UK taxes and levies
The UK doesn’t withhold tax on ordinary dividends paid to overseas holders, per secondary summaries of HMRC guidance such as 1stformations. REIT property income dividends are the exception, with 20% withheld, per a 2018 KPMG profile.
Buying UK shares directly costs 0.5% stamp duty or SDRT on purchases above £1,000, collected through CREST (London Stock Exchange). AIM shares are exempt, and newly listed UK companies get three years of relief on trades from 27 November 2025. Direct trades above £10,000 also pay a £1.50 Panel on Takeovers and Mergers levy, which excludes ETFs. Check with your broker whether stamp duty applies to ETF purchases.
UCITS ETFs
Four Irish-domiciled UCITS ETFs track UK indices (issuer factsheets, 7 October 2026; the Vanguard distributing fee is from 30 November 2025).
| ETF | ISIN | TER | Income |
|---|---|---|---|
| iShares Core FTSE 100 UCITS ETF GBP (Dist), ISF | IE0005042456 | 0.07% | Distributing, quarterly |
| iShares FTSE 250 UCITS ETF GBP (Dist), MIDD | IE00B00FV128 | 0.40% | Distributing, quarterly |
| Vanguard FTSE 100 UCITS ETF GBP Accumulating | IE00BFMXYP42 | 0.09% | Accumulating |
| Vanguard FTSE 100 UCITS ETF GBP Distributing, VUKE | IE00B810Q511 | 0.09% | Distributing, quarterly |
All four are priced in sterling, so a euro investor carries the pound.
Brokers
Interactive Brokers states that its commissions exclude the 0.5% stamp duty. DEGIRO’s Irish fee schedule, dated 29 October 2026, lists a €1.00 handling fee on most exchange orders and 0.25% on automatic currency conversion. Connectivity and FX charges vary by country, so read the live schedule for your country before trading. The guide to European brokers, the Interactive Brokers review and the DEGIRO review cover the platforms.
Tax at home
Dividends and gains from UK shares are taxed where you live, at your national rates. The rules and forms differ by country and between direct shares and ETFs, so check them with an accountant before you buy.
The Bottom Line
UK stocks trade at 12.1 times forward earnings against 19.4 for the US and pay close to three times the US yield, and one study finds about two-thirds of the gap survives adjustment for sector, growth and quality. The same stocks returned 8.5% a year in euros over ten years against 12.7% for the world, in a market that keeps shrinking. The evidence fits, at most, a small value and income position next to a global core, held on the expectation that the discount may persist.
Frequently Asked Questions
Is the FTSE 100 a UK-only bet?
Over four-fifths of its revenue came from outside the UK as of 2022, so it tracks global earnings booked in London.
Do UK dividends have withholding tax?
Ordinary dividends carry no UK withholding for overseas holders. REIT property income dividends carry 20%. Your country of residence still taxes them, so confirm the treatment with an accountant.
Is a UK ETF available to EU investors?
Yes. Irish-domiciled UCITS ETFs from iShares and Vanguard track the FTSE 100 and FTSE 250, with TERs from 0.07% to 0.40%, through brokers such as Interactive Brokers and DEGIRO.
Related
Leave a Reply