Almost ten years after British voters opted to leave the European Union on 23 June 2016, the FTSE 100 has reached nominal record highs. Yet beneath the surface, the financial consequences of that decision remain stark.
A new analysis from Morningstar, titled "The Brexit Decade," quantifies the damage. Since the referendum, UK equity funds have experienced cumulative net outflows of roughly $160 billion, marking six consecutive years of redemptions. This is not a cyclical dip but a structural loss of confidence.
Performance gap widens across markets
The FTSE 100, which tracks the 100 largest companies on the London Stock Exchange, has risen 62% since the vote, translating to a compounded annual growth rate of just under 5%. In contrast, the S&P 500 has surged 253% over the same period, an annualised return of 13.4% — nearly three times the pace of UK large-caps.
The underperformance is not limited to a transatlantic comparison. Within Europe, Germany's DAX has returned 151%, and the Euro STOXX 50 has gained 109%. This suggests that Brexit has weighed more heavily on London than on its continental rivals, such as Frankfurt and Paris.
Morningstar argues that Brexit acted as a catalyst rather than the root cause. The UK equity market entered the referendum with pre-existing structural headwinds: declining domestic pension demand, capital rotating toward US growth markets, and a sector mix tilted toward energy, banks, and miners rather than the technology platforms that dominated the 2010s. Brexit amplified these trends, increasing the UK's perceived risk premium and damaging investor 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 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 freed-up capital redirected 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. The share of total assets in passive UK equity vehicles has climbed from 22% to 46%. Active large-cap managers, including Columbia Threadneedle, Jupiter, Liontrust, Aviva, and Schroders, have absorbed the heaviest outflows, while Vanguard, iShares, and Phoenix Group have taken in inflows.
Subsequent shocks — Covid-19, the global inflation surge, geopolitical conflict, falling foreign direct investment, weaker goods exports, and domestic policy missteps such as the gilt market crisis of autumn 2022 — compounded the damage. Isolating Brexit's precise impact is difficult, but Morningstar acknowledges there is no serious argument that it did not materially worsen outcomes.
Sterling weaker against key currencies
The currency market tells a parallel story. The pound has fallen about 10% against the US dollar and 12% against the euro since the referendum. On the eve of the vote, one pound bought €1.31; today it buys roughly €1.15, a 12% loss of purchasing power against the single currency the UK chose to leave.
Against central and eastern European peers, the decline is even sharper. Sterling has tumbled over 20% against the Czech koruna and 13% against the Polish zloty — economies that have absorbed manufacturing capacity and foreign direct investment that might otherwise have flowed to the UK. 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.
This currency weakness has real-world implications for British travellers and businesses. As the EU closes the Brexit pet passport loophole, the cost of cross-border movement continues to rise.
Is a turning point emerging?
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: 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 view this as an entry point. Natalie Bell, fund manager on the Liontrust Economic Advantage team, noted 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 timing and magnitude are difficult to predict.
Others remain cautious. Mislav Matejka, head of global and European equity strategy at JP Morgan, has argued that British equities often perform 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.
As the continent continues to evolve, the legacy of Brexit remains a defining factor for UK markets. The 2004 EU enlargement forged a generation of businesses across Europe, while the UK's departure has reshaped its own financial landscape in ways that are still unfolding.
