UK Markets Must Go ‘Risk-On’ for Growth

UK markets must embrace a more entrepreneurial and ambitious mindset to meet the country’s long-term growth targets, according to a report by the Capital Markets Industry Taskforce, which includes some of the City’s most prominent figures.

The report, titled Capital Markets of Tomorrow, highlights the need for policymakers to take a “risk-on” approach, aiming to secure an estimated £1 trillion in additional investment essential for sustained economic growth.

“Since the 2008 financial crisis, UK markets have been largely risk-averse, with a focus on managing downside risks. While this approach has been necessary at times, well-functioning capital markets require informed and calculated risk-taking,” the report states. “Unlike the US, where tech giants like Apple and Microsoft each have market capitalisations exceeding $3 trillion, the UK has yet to produce a company of that scale.”

The taskforce includes notable names such as London Stock Exchange CEO Dame Julia Hoggett, Latham & Watkins partner Mark Austin, Schroders’ CEO Peter Harrison, and Barclays’ head of strategic policy Katharine Braddick. Former Legal & General CEO Sir Nigel Wilson chaired the group, which identified four key areas of focus for policymakers: capitalising on green opportunities, increasing investment in domestic businesses, reviving the UK’s risk appetite, and supporting retail investment.

The report comes at a time when London has faced challenges in retaining high-profile companies. Recent moves by firms like chipmaker Arm, CRH, and Ferguson to list in New York have underscored the issue. Nevertheless, optimism is rising in the City, with the London Stock Exchange attracting eight new listings in the first half of 2024, raising £513.8 million, a marked improvement after record lows in late 2023.

Valuations of digital banks such as Revolut, Monzo, and Starling have also rebounded, with speculation about imminent IPOs adding to the growing sense of optimism.

Sir Nigel Wilson emphasised that the report offers a balanced view of the challenges and opportunities ahead. “We are at a turning point, moving away from a cycle of pessimism towards a future where the UK’s capital markets can realise their full potential,” he said.

Minutes from the taskforce’s June meeting also reveal discussions on potential reforms, including a ‘Great British ISA,’ pension consolidation, and governance changes aimed at unlocking more capital for investment.