By Neil Shah, Director of Content and Strategy at Edison Group
After years in the wilderness, UK equities may finally be nearing a long-awaited turning point. Once dismissed by global investors as dull, domestically constrained and policy-prone, the London market is beginning to show signs of quiet revival. Though sentiment remains deeply negative, recent research from Edison suggests the combination of value, income and balance sheet strength now on offer makes the UK one of the most compelling developed markets globally.
Bank of America’s September 2025 fund manager survey captures the mood starkly. UK shares are currently regarded as the “most unloved assets in the world”, with investors holding their largest underweight positions in more than two decades. That kind of extreme positioning often signals exhaustion rather than conviction, and historically, such moments have preceded periods of outperformance. When markets reach peak pessimism, the risk often shifts from further downside to missing the recovery altogether.
Valuations certainly point to opportunity. Edison’s latest analysis shows UK equities trading at roughly 13 times forward earnings, a 35% discount to global peers. Yet this apparent cheapness conceals global strength. More than 80% of FTSE 100 revenues originate overseas, meaning investors are effectively buying international franchises at domestic prices. Companies such as Unilever, Diageo, BAE Systems and National Grid generate the majority of their earnings abroad but continue to trade at significant discounts to their US and European counterparts. For long-term investors, that disconnect looks increasingly difficult to justify.
The macro environment is also turning more supportive. The November budget is expected to bring clarity rather than disruption, with Chancellor Rachel Reeves likely to prioritise stability over experimentation. With limited fiscal headroom, markets anticipate a pragmatic approach that reassures business and investors alike. Inflation, which peaked above 11% in 2022, is now trending steadily lower and is forecast to approach 2% by late 2026. Meanwhile, the Bank of England’s expected rate cuts over the next 12 months should provide further relief to households and corporates, easing borrowing costs and rebuilding confidence. Against that backdrop, the relative value in UK shares stands out even more sharply.
Edison’s recent research highlights four themes likely to attract renewed capital. Large-cap defensives remain the foundation of UK equity income portfolios, with companies such as Diageo, Imperial Brands, Unilever and National Grid offering dependable earnings and dividend visibility. Financials, long a source of investor frustration, are quietly rebuilding credibility. Barclays, HSBC and Lloyds are all generating strong cash returns, benefiting from steeper yield curves and aggressive buyback programmes, yet still trade 40–50% below target prices. Early cyclicals, including Wickes and Dunelm, could gain from a gradual recovery in housing activity and consumer spending, while defence names like BAE Systems and Rolls-Royce are well positioned to benefit from multi-year European rearmament programmes that provide rare structural growth in a volatile world.
Perhaps the most striking shift underway is what Edison calls the “yield revolution”. The FTSE All Share currently yields around 3.3%, and when ongoing buyback programmes are included, total shareholder returns rise to roughly 5–6%. That is a powerful proposition in an era of subdued bond yields and lingering economic uncertainty. Income that is both visible and sustainable has become a scarce commodity, and the UK market now offers it in abundance. For income-focused investors, this could mark a re-rating moment.
Challenges remain, of course. Rising business energy costs will weigh on margins, especially for smaller enterprises and consumer-facing sectors, while recent revisions to ONS household savings data suggest the average UK consumer may have fewer spare cash than previously assumed. Yet these headwinds appear already priced into the market. More importantly, UK corporates are adapting by cutting costs, shedding non-core assets and using buybacks to support earnings per share growth. The quiet operational discipline emerging across listed UK companies is, in many ways, the most important story investors are not yet telling.
In the near term, the November budget may act as a psychological reset. With expectations set low, even modest fiscal reassurance could spark a relief rally. For investors, the question is not whether the UK has changed overnight, but whether it has finally reached the point where the risks are adequately discounted and the upside ignored. The answer increasingly appears to be yes.
After years of neglect, the UK market does not need heroics to perform. Instead, it just needs a steady easing of the pessimism that has dominated sentiment for years. With global franchises priced as domestic laggards, healthy dividend cover, disciplined management teams and capital quietly flowing back in, London-listed shares look poised for reappraisal. The market that investors forgot may soon be the one they can no longer afford to overlook.
