Why the UK’s Stock Market Lost Three-Quarters of Its Activity

Since Prime Minister Margaret Thatcher unleashed a wave of privatizations in the 1980s, the London Stock Exchange has been a symbol of Britain’s free-market economy. Home to companies that dominate global industries, including AstraZeneca Plc, Shell Plc and HSBC Holdings Plc, the FTSE 100 Index is an international benchmark. However, trading volume has slumped in recent years and some British companies have picked other markets to list their shares. It appears to fit the narrative of a nation whose economy has run into trouble, hit by under-investment and the jolt to trade from Brexit. Yet there are other, more complex factors at play.

Activity has shrunk from its peak before the global financial crisis, with average daily traded volume on the FTSE All-Share Index falling to about £3.7 billion ($4.6 billion) in May 2023 from almost £15 billion in the same month of 2007. Investors tend to pay less for illiquid stocks as they risk a bigger loss when they come to sell. In early June, the MSCI UK share index was trading near a record 45% discount to its US counterpart, based on forward price-to-earnings ratios.