Almost a decade after British voters chose to leave the European Union on 23 June 2016, the FTSE 100 has been hitting record highs.
ADVERTISEMENT
ADVERTISEMENT
Yet beneath the headline, the financial scars of that vote remain unmistakable.
A new Morningstar analysis titled “The Brexit Decade” laid out the damage in numbers that are hard to dismiss.
Since the referendum, UK equity funds have bled roughly $160 billion in cumulative net outflows, six consecutive years of redemptions that have hardened into a structural loss of confidence rather than a passing cyclical drawdown.
How wide a performance gap has opened between UK stocks and comparable equity markets since the vote? And how has the pound fared?
UK FTSE 100 has trailed Wall Street and continental Europe
The numbers speak for themselves.
The FTSE 100, the benchmark tracking the 100 largest companies listed on the London Stock Exchange, has gained 62% since Brexit.
Over a 10-year window, that works out to a compounded annual growth rate of just under 5%.
Wall Street has run a different race. The S&P 500 has rallied 253% over the same stretch, a 13.4% annualised return — almost three times the pace of UK large-caps.
The gap is not just a transatlantic story.
Within Europe, the German DAX has returned 151% and the Euro STOXX 50 has gained 109%, suggesting Brexit has weighed more heavily on London than on the continental rivals it left behind.
Why UK markets lagged: A pre-existing weakness Brexit made worse
According to Morningstar, Brexit was a catalyst rather than the root cause of the UK market’s underperformance.
The UK equity market entered the 2016 referendum with pre-existing structural headwinds — declining domestic pension demand, capital rotating toward US growth markets, and an unfavourable sector mix tilted toward energy, banks and miners rather than the technology platforms that dominated the 2010s.
Brexit amplified and accelerated these trends, increasing the UK’s perceived risk premium and damaging confidence at a critical moment.
Investor behaviour has been unambiguous. UK allocations were systematically redeployed to the US, while passive strategies gained share as active UK equity economics deteriorated.
The UK’s footprint in global benchmarks has roughly halved over the past two decades, falling from nearly 10% of the MSCI ACWI to around 4% today.
In the most aggressive sterling-allocation fund category tracked by Morningstar, average UK equity weights have collapsed from 40% to 18%, with the freed-up capital systematically redeployed to US equities.
The asset management industry has felt the chill directly.
Around 380 UK equity strategies have closed since 2016 against just over 200 launches, and the share of total assets sitting in passive UK equity vehicles has climbed from 22% to 46% over the same period.
Active large-cap managers, including Columbia Threadneedle, Jupiter, Liontrust, Aviva and Schroders, have absorbed the heaviest outflows. Vanguard, iShares and Phoenix Group have absorbed the inflows.
The damage was then compounded by Covid-19, the global inflation shock, geopolitical conflict, falling foreign direct investment, weaker goods exports and domestic policy missteps — most notably the gilt market crisis of autumn 2022.
Isolating Brexit’s impact is difficult, Morningstar acknowledges, but there is no serious argument that it did not materially worsen outcomes.
Sterling: Weaker where it matters most
The currency market tells a parallel story. The pound is down about 10% versus the US dollar and 12% versus the euro since the Brexit vote.
Against the world’s two reserve currencies, sterling has lost ground.
On the eve of the Brexit referendum, one pound bought €1.31. Almost a decade later, it buys just €1.15 — a roughly 12% loss of purchasing power against the single currency that the United Kingdom voted to step away from.
The picture sharpens against central and eastern European peers.
Sterling has tumbled over 20% against the Czech koruna and 13% against the Polish zloty, both economies that have absorbed manufacturing capacity and foreign direct investment that might otherwise have flowed to the UK.
Notably, the pound has barely held its ground against the Hungarian forint, eking out a 1.8% gain against one of Europe’s most volatile currencies.
Is there a turning point for UK markets?
The narrative is no longer one-way.
Since 2022, UK equities have outperformed US and global markets, driven by a strong value rotation and resilient dividends — without meaningful multiple expansion, according to Morningstar.
Valuations still reflect pessimism, however.
The UK trades at a 30% to 35% price-to-earnings discount to the US, with small and mid-caps the most depressed relative to history and developed peers.
Elevated mergers and acquisitions activity and record share buybacks suggest corporate insiders and overseas acquirers see value where public investors remain sceptical.
Some fund managers see this as the entry point.
Natalie Bell, fund manager on the Liontrust Economic Advantage team, said in a recent note that “valuations remain significantly depressed versus long run averages and other comparable markets,” adding that her team sees a broad-based valuation reversion opportunity for UK equities, particularly in small and micro-caps, even if the timing and magnitude is difficult to predict.
Others remain more cautious. Mislav Matejka, head of global and European equity strategy at JP Morgan, has argued that British equities often do well when investors turn bearish on everything else, given the FTSE 100’s defensive, liquid profile.
He sees the UK index rising 5% to 10% in 2026 but does not hold an overweight, on the view that the UK lacks a clear growth catalyst comparable to those emerging in Germany or China.
Ten years on from the vote, the question for international investors is no longer whether Brexit hurt UK markets — it is whether the resulting discount has now become the opportunity.
