Is the UK market at a turning point?

The UK has spent the better part of a decade navigating political transitions, uneven productivity and a lingering narrative of economic caution. Investors responded accordingly, marking down UK assets and reallocating capital toward markets with clearer policy direction and stronger growth momentum.

As 2026 progresses, however, the distance between sentiment and the underlying opportunity set has become increasingly pronounced. The UK still faces structural challenges, yet signals across private and public markets point to the early signs of a broader recalibration rather than a cyclical rebound.

The central question now is whether the UK is beginning to move out of a long period of under‑allocation and into a phase where fundamentals, capital flows and policy direction start to align more constructively. Friction remains, yet in markets friction often conceals mispricing.

In conversation with Alex Seddon (Head of M&G Impact and Private Equity), Michael Stiasny (Head of UK Equities) and Alex Greaves (Head of UK Residential, M&G Real Estate), we consider how this disconnect is creating selective opportunities across private and public markets alongside real estate. Their insights point to a market that may be on the cusp of a more durable shift.

Innovation strength that remains mispriced and undercapitalised

The UK remains a global innovation outlier. It now hosts 205 venture‑backed companies generating more than US$100 million in revenue, with another 630 exceeding US$25 million, making it the third‑largest innovation economy in the world after the US and China¹. Venture capital continues to validate this strength, with US$23.6 billion invested in 2025, outpacing Germany, France and Switzerland combined².

This performance rests on a research base that continues to outperform. As Seddon highlights, the UK contains half of Europe’s leading deep tech and life sciences universities, producing a steady pipeline of ideas and talent. Early‑stage momentum is therefore not a constraint. The challenge appears later in the growth cycle, when companies must transition from technical promise to commercial scale and require larger rounds of patient capital alongside institutional investor stewardship to compete globally.

“As Seddon highlights, the UK contains half of Europe’s leading deep tech and life sciences universities, producing a steady pipeline of ideas and talent.”

It is at this scale up stage that the UK’s capital environment thins. High‑growth companies routinely seek US investors, often adopting US governance and ultimately US listings. Seddon observes that the innovation ecosystem has all the ingredients for global success except sufficient domestic scale‑up capital needed to anchor high‑potential firms domestically. As a result, value created in the UK is frequently realised in markets with deeper follow‑on funding and stronger liquidity.

This gap between capability and capital creates a persistent distortion. The UK generates frontier innovation in areas such as energy transition and healthcare technology, yet these companies often raise capital at valuations well below their US counterparts. International relevance meets domestic pricing, and investors willing to work within this misalignment can gain access to high‑growth companies at discounts unavailable in larger markets. 

“The UK generates frontier innovation in areas such as energy transition and healthcare technology, yet these companies often raise capital at valuations well below their US counterparts.”

With limited domestic late‑stage funding, investors can engage earlier and with greater governance influence, using staged financing or milestone‑linked structures to manage execution risk while retaining exposure to globally scalable technologies.

The broader pattern points to an ecosystem where innovation is progressing more quickly than the capital base required to support scale‑up. For investors, this lag is sustaining valuation levels that allow access to globally relevant companies at prices that still sit below their long‑term market potential.

Public markets offering value ahead of structural reform

The capital imbalance confronting UK innovators is mirrored in its public markets. Prolonged political uncertainty and sustained derating have left UK equities materially undervalued on a sector‑neutral basis, feeding a misperception that the UK market is a proxy for domestic economic conditions. With roughly three quarters of FTSE All‑Share revenues earned overseas, the market’s direction is shaped far more by global dynamics than by the UK’s own economic outlook, Stiasny argues.

“With roughly three quarters of FTSE All‑Share revenues earned overseas, the market’s direction is shaped far more by global dynamics than by the UK’s own economic outlook, Stiasny argues.”

This global profile helps explain performance trends that run counter to mainstream narratives. Despite the dominance of US mega‑cap technology stories, UK banks have outperformed the Magnificent Seven over the past five years, and long‑standing UK compounders in insurance, information services and specialised industrials have delivered steady returns. These sectors sit outside the hype cycle but benefit from globally diversified revenue streams and robust underlying fundamentals.

The main pressure on UK public markets has not been business performance but valuation discipline. UK listings have traded at steep discounts, and IPO activity slowed as companies resisted entering a market applying outsized risk premia. That environment is beginning to change.

Discounts on new issues are narrowing, and initial signs of renewed issuance are visible. Stiasny acknowledges that there is a market for IPOs once again, although younger businesses still require capital at a scale the domestic market is only now beginning to rebuild.

What distinguishes the current moment is that this structural gap is now the subject of explicit policy focus. Government measures such as the Mansion House reforms, local pension scheme consolidation and efforts to encourage more tax efficient domestic investment to channel long‑term UK savings toward long‑term UK assets.

As Seddon puts it, “the long‑term savings pools in this country should be investing in long‑term innovation here.” These reforms aim to deepen liquidity, strengthen the growth pipeline and reduce the pattern of UK‑origin companies scaling abroad rather than at home.

“These reforms aim to deepen liquidity, strengthen the growth pipeline and reduce the pattern of UK‑origin companies scaling abroad rather than at home.”

This domestic policy shift is emerging alongside growing interest from international allocators. Greaves highlights substantial commitments from Asian institutional investors who have committed close to £1 billion into UK real estate over the past 18 months³, underscoring the attractiveness of UK fundamentals even as domestic sentiment has lagged. Altogether, these developments suggest that the UK’s capital market architecture may be approaching an inflection point, with a stronger domestic bid beginning to complement external flows.

For investors, the implication is clear. UK equities currently combine globally diversified earnings with discounted valuations, and the market’s underlying structure is beginning to strengthen. For those willing to look beyond near‑term sentiment, the UK offers a rare combination of globally diversified earnings, comparatively low valuations and early evidence of a more supportive institutional backdrop.

Residential real estate revealing the depth of the UK’s supply‑side opportunity

The structural imbalances that appear in the UK’s innovation and public market ecosystems are even more visible, and more consequential, in housing. Few sectors demonstrate the scale of the challenge, or the depth of the opportunity, as clearly.

London housing starts fell to their lowest level in 35 years in 2025, well below the government’s annual target of 88,000 new homes⁴. Across the country there are around 25 million households and roughly 8.8 million already renting⁵, which means the pressure is not on demand but on delivery.

This persistent undersupply has created one of the most durable opportunity sets in UK real estate. Greaves explains that with a third of Londoners renting, the city has a deep, structured rental market, which is why the progression from student accommodation to a first rental apartment follows such a predictable path. The living sector continues to expand not simply because of preference but because of necessity. Structural demand has become embedded, and long‑term occupancy patterns remain resilient across cycles.

Financing conditions have been the main barrier to unlocking new supply. Higher borrowing costs have made UK development less competitive than similar projects in continental Europe, where cheaper debt has drawn institutional capital in recent years. A shift in interest rate conditions would materially improve development viability and help restore the UK’s relative appeal, particularly given the additional drag of slow planning processes and constrained local authority capacity. These frictions limit new supply and ultimately reinforce the scarcity that supports occupancy, rental growth and long‑duration income across the living sector.

“These frictions limit new supply and ultimately reinforce the scarcity that supports occupancy, rental growth and long‑duration income across the living sector.”

Placed alongside the UK’s innovation strengths and renewed value emerging in public markets, residential real estate forms the third pillar of a compelling investment landscape. It is a market where demographic certainty meets chronic supply scarcity, helping to create conditions that remain supportive for long‑term capital.

A market misread, not a market in retreat

The UK is not without structural challenges, and no single shift in sentiment or policy will transform its economic trajectory overnight. Yet the picture emerging across private and public markets as well as real estate suggests an environment that is gradually stabilising after a prolonged period of under‑allocation. The innovation ecosystem remains rich, valuations in public markets continue to reflect more pessimism than fundamentals and structural demand in housing is unlikely to ease. Overall, these factors point to a market that has been consistently misread rather than fundamentally weakened.

Policy efforts to deepen domestic capital pools, along with renewed interest from global investors, indicate that some of the barriers that have held the UK back are beginning to ease. Progress will be uneven, but the direction of travel matters.

For long‑term allocators, we believe the question is not whether the UK is ‘back,’ but whether the disconnect between sentiment and opportunity is now too large to ignore. The early signs suggest an economy edging toward firmer footing and a market offering selective but meaningful openings for disciplined investors.

“For long‑term allocators, the question is not whether the UK is ‘back,’ but whether the disconnect between sentiment and opportunity is now too large to ignore.”

^1,2 Dealroom, December 2025.
³ Based on publicly announced transactions and internal M&G estimates.
⁴ UK Ministry of Housing, Communities and Local Government, January 2026.
⁵ UK Ministry of Housing, Communities and Local Government, ‘English Housing Survey 2024 to 2025: Headline findings on demographics and household resilience’, (gov.uk), December 2025.