2025 will be a year of green shoots for the City

Changing mood music should gradually shift sentiment in London’s favour – and with the fire power of pension funds 2025 could be a better year than the City has seen in a while, says Steven Fine

In New York, investors are in bullish form. I met one very well-known player recently who nearly knocked me off my chair when he said he was expecting 150 initial public offerings in the US next year.

I hope he’s right, because where the US leads, other markets usually follow. Here in the UK, numbers like that look a mile off, for now at least. Some great businesses have floated in 2024 – Raspberry Pi and Aoti among them – but overall we’ve struggled to get into double figures. London has to go back to 2021 and the post-Covid rush to get anywhere near 150, when the US managed around 400.

Unfortunately too much of the traffic has been going the other way. We’ve lost UK-listed companies with a combined equity value of almost £50bn in 2024. That is a real concern. At the same time we have been struggling to refill the hopper and bring new companies to the market. If you add up the number of companies that have either de-listed, been taken out or are currently under offer, it is almost 100. That’s a staggering loss of public market presence.

Macro factors, such as elections in the US and UK, have played a part as well as uncertainty over the UK Budget. But there has also been a valuation issue. Investor cash has been flowing out of the UK market: over three and a half years, UK-focused funds saw more than £25bn of outflows until November when – hallelujah – we finally broke that unwanted 41-month streak. 

Whether one swallow makes a summer remains to be seen, but we can’t underestimate the impact of those 41 months of outflows. If any streaming service or newspaper had 41 months of falling subscriptions, there would be an apocalyptic reaction. We don’t seem to care. And where does that leave us? Our bellwether index of the engine room of the domestic UK economy is the FTSE 250.  But the market value of that entire index is currently the same size as US based wholesaler Costco. We need to see a consistent reversal of those fund flows trends to turn that discount around, as well as owners who are willing to take a more realistic approach to valuations in a world where interest rates are no longer close to rock-bottom levels.  

The UK is laying out the welcome mat

The good news for London in 2025 is that we’ve now got some political stability and we’ve been doing a lot of self-help on the supply side. If you take a step back, there are a huge number of initiatives which as a package demonstrate the UK is laying out the welcoming mat for capital markets activities. Those fixes include the more user-friendly single listing regime, less red tape around prospectuses and changing attitudes towards remuneration. Rachel Reeves summed it up well in her Mansion House speech in November when she talked about regulating for growth, not regulating for risk. 

That changing mood music is important because it will gradually shift sentiment. Helpfully, there is a decent pipeline of companies who are holding initial meetings with would-be investors and we expect to see a broader reopening of the IPO market in mid-2025. 

But we can still do more to underpin London’s appeal. Outside IPOs, London saw three times as much equity capital market activity as its nearest European rival last year, but no single market has a God-given right to success. If we rest on our laurels there is a risk we become less and less relevant compared to the US. 

No single market has a God-given right to success

Nobody could miss the irony of the government holding a major summit to encourage overseas investment into UK last October when our own pension funds have been putting their money elsewhere for years and allocating tiny portions of their funds to the UK. The Chancellor’s plans for pensions “mega funds” are a decent start, but other moves, such as a British ISA to encourage savers to invest in our own economy would be even better. Let’s stop subsidising other countries’ cost of capital. With the firepower of the pension funds and retail investors, we can nurture those green shoots in 2025.

Steven Fine is chief executive of investment bank Peel Hunt