After years of uncertainty following Brexit and Westminster political chaos, the UK is emerging as a safe haven for investors in 2025. Analysts attribute the shift to growing concerns over political instability and economic policy confusion in the United States under President Donald Trump.
Dan Coatsworth, investment analyst at AJ Bell, said the change marks a dramatic reversal. “Certain investors believe the US is a much higher-risk investment prospect under Trump, and they’ve taken money off the table and reallocated to other parts of the world including the UK,” he explained.
London Market Surges as Capital Returns
The FTSE 100 hit a historic milestone in mid-July, surpassing 9,000 points for the first time—nine times its original benchmark of 1,000. This follows a previous record in February 2023 when the index briefly crossed 8,000.
Coatsworth noted that political stability following last summer’s general election, along with the UK securing the first new trade deal with the Trump administration, have prompted global investors to reconsider Britain’s prospects.
US Dollar Decline Undermines Confidence
The continued slide of the US dollar has further discouraged foreign investment in American markets. The dollar index is down nearly 9% year-to-date, despite a recent minor rebound. In May, Moody’s downgraded the United States’ credit rating from AAA to AA1—the first time in over a century the U.S. has lacked a triple-A rating from any major agency.
The situation escalated when viral footage showed Federal Reserve Chair Jerome Powell shaking his head during a visit with Trump at the Fed building, highlighting clear tensions between the administration and the central bank.
“Dollar weakness will have spurred UK investors to look closer to home for opportunities,” said Coatsworth. “A weaker dollar versus the pound makes US assets less attractive.”
Defence Spending Fuels Market Growth
With Trump pressuring NATO allies to increase military spending while adopting a conciliatory tone towards Russia, European nations are fast-tracking major defence deals. This surge in defence budgets has made Europe’s defence firms—and by extension the UK’s—prime investment targets.
UK defence-linked companies such as Babcock, Rolls-Royce, and Fresnillo have become top performers on the FTSE 100 in 2025, driven by growing demand for cybersecurity, drones, and missile systems.
“The UK stock market has a wealth of defence contractors which have attracted investor interest amid rising government spending on military and digital defence,” Coatsworth said.
UK Stocks Offer Bargain Valuations
Valuation is also a key factor in the capital shift. Compared to the S&P 500 index, which trades at 22.2 times projected earnings, the FTSE 100 remains attractive at just 12.6 times forward earnings.
“Valuation is another reason the UK has functioned as a magnet for people switching out of US markets,” Coatsworth added.
As political volatility grips the US, the UK’s relatively calm landscape, rising defence spending, and undervalued equities are making it the surprise financial safe haven of 2025.
