The UK once again feels politically turbulent.
After bruising local and devolved Parliament elections, Labour is showing signs of internal strain. Wes Streeting has resigned from Cabinet, Angela Rayner is positioning herself, and Andy Burnham is working on his return to Parliament. Our seventh Prime Minister in a decade might be beckoning, despite the large majority and political stability Labour pledged to restore.
This article isn’t personal advice. If you’re not sure an investment is right for you, seek advice. Investments and any income from them will rise and fall in value, so you could get back less than you invest.
What political uncertainty does to markets
The consequences show up first in the gilt market. Ten-year UK gilt yields have climbed above 5%, touching near 18-year highs as the leadership drama has intensified.
More than a quarter of UK government bond buyers are overseas investors who assess gilts against other investable markets. When they perceive a wider range of possible outcomes – a new Prime Minister, a new Chancellor, uncertain fiscal rules – investors demand a higher return. That risk premium is the market’s uncertainty tax, and it has been rising.
For fixed income investors, however, there’s another side to this story. Those elevated yields mean UK government bonds now offer real returns that look genuinely attractive on a long-term basis.
Some longer-dated gilts are yielding close to 5.8%, and crucially, any capital gains on gilts are exempt from capital gains tax – a meaningful advantage for investors holding outside a Stocks & Shares ISA or pension.
A prolonged leadership contest could push yields higher still before settling, and timing the entry point in fixed income is therefore going to be difficult. However, for patient investors prepared to lock in income at these levels, the risk-reward is more interesting than it has been for many years.
The takeover wave hiding in plain sight
While political drama dominates headlines, something else has been happening – the UK stock market has been the subject of a sustained and accelerating acquisition spree. The buyers are sophisticated, well-capitalised and often come from overseas. They are sending a clear signal about where they see value.
Already in 2026, there have been 13 live takeover deals involving UK-listed companies, with overseas buyers accounting for around 60% of them across FTSE 100, FTSE 250 and smaller companies.
The total value stands at around £43bn so far this year. This week alone brought a £2.7bn approach for Tate & Lyle from US food group Ingredion, a £1bn bid for Spire Healthcare, and Intertek have recommended a £9.4bn offer from EQT at a 62% premium.
Joaquim Clement at Panmure Liberum points out that UK valuations have been compressed by sustained outflows from domestic investors, particularly pension funds. Charles Hall from Peel Hunt says that boards and investors have become willing sellers in the face of redemptions, so there’s a high probability of deals being completed.
For overseas buyers, the combination is compelling – great companies at prices that reflect the distress seen in the UK market rather than the quality of the businesses themselves.
William Rosier, who works on the Marlborough Multi-Cap Income Fund adds that significant regulatory changes, updated Public Offers and Admissions to Trading Regulations, a revised Takeover Code, and a more relaxed competition regulator, may have contributed to the acceleration. Some of these changes only came into force in January and February this year. Large caps have re-rated over the past two to three years, he notes, but significant real value remains in small and mid-caps, precisely where the bulk of activity is concentrated.
Why Britain, not Europe?
This is not a global phenomenon, says Charles Hall. The same dynamic is not playing out, for example, in continental Europe, where France actively protects strategic assets and Germany has fewer listed small and medium-sized companies to target.
Two structural features make the UK distinctive – companies here are English-speaking and internationally oriented, making integration straightforward for overseas buyers, and UK listed companies typically have broad, dispersed shareholder bases.
Many European companies, by contrast, have large anchor shareholders – families, foundations or even the state – with longer time horizons and little inclination to sell. The UK’s openness has in the current environment made it the path of least resistance for overseas capital.
However, I’d argue that equally means that were domestic flows to return, the potential for value creation is considerable. There’s precedent of a virtuous circle to return – we have seen this ‘vibe shift’ take place in the Japanese stock market over the last couple of years.
The case for Britain (with a side order of patience)
The ingredients for a genuine re-rating are identifiable. The economic fundamentals are better than the mood music suggests. GDP grew 1.1% year on year in the first quarter and corporate earnings have broadly remained resilient. Yes, the Middle East conflict is a serious issue to be faced, however, that’s affecting all economies, not just ours.
Sophisticated buyers are putting their money where their mouth is. The fixed income market is offering yields not seen in nearly two decades. And the businesses underpinning this market are, as every overseas acquirer confirms, high quality.
Political storms pass. Value, eventually, reasserts itself. For patient investors willing to look through the current noise, the UK may prove to be one of the more compelling markets right now, and with share buybacks, higher dividends than many other developed markets and attractive income on fixed interest, they’re getting rewarded while they wait.