After years of political turbulence in Westminster and post‑Brexit economic whiplash that drove capital away, the current US policy chaos has propelled global investors back to London, turning the UK into 2025’s unlikely safe haven.
“Certain investors believe the US is a much higher-risk investment prospect under Trump and they’ve taken money off the table and reallocated to other parts of the world including the UK," according to Dan Coatsworth, investment analyst at AJ Bell.
"This is a dramatic shift in thinking, given that the US has been a top place to make money for years."
US President Donald Trump's administration has spent most of 2025 imposing, scrapping and re-imposing tariffs on its biggest trading partners and allies.
"Political stability since last summer’s general election, along with the UK being the first to strike a trade agreement with the US under the Trump administration, have prompted certain overseas investors to think again about the UK’s situation and prospects," Coatsworth continued.
The FTSE 100 Index broke the 9,000 valuation record in mid July, taking it nine times above its baseline of 1,000.
The index’s previous major milestone came in February 2023, when it briefly pushed past 8,000.
US dollar in freefall amid fights with the Fed
In May, Moody's downgraded the United States' credit rating from AAA to AA1, marking the first time in over a century that the US no longer held a triple-A rating from any major credit agency.
Last week, footage of Federal Reserve Chair Jerome Powell went viral as he stood next to Trump during a visit to the Fed building, with the bank chief shaking his head in apparent disagreement.
Trump's criticism of Powell — who is arguably the most powerful guardian of the dollar's value — has aggravated the currency’s steady slide since the new administration took office in January.
“Dollar weakness will have spurred UK investors to look closer to home for opportunities. A weaker dollar versus the pound makes US assets less attractive," explained Coatsworth.
Although the greenback has risen in recent days, the dollar index is still down almost 9% in the year to date.
Defence is a money magnet
Trump's departure from US foreign policy norms, for instance by demanding that Europe pay more for NATO while sending positive signals to Russia, has shocked leaders across the continent, undermining global security.
Interest in government defence spending across the EU and the UK has risen at a record pace since the Cold War, with some governments fast‑tracking multibillion‑euro deals for the procurement of missiles, drones and cybersecurity systems.
This environment has made Europe’s defence contractors prime targets for fresh capital as investors look for assets that can outpace geopolitical shockwaves.
Fresnillo, Babcock and Rolls-Royce, all either defence contractors or working on defence-adjacent projects, are the best-performing FTSE stocks so far in 2025.
“The UK stock market has a wealth of defence contractors which have attracted investor interest against a backdrop of increased government spending on areas like cybersecurity and military forces," Coatsworth added.
A bargain for investors?
“Valuation is another reason the UK has functioned as a magnet for people switching out of US markets," said Coatsworth, as FTSE stocks are cheaper than US alternatives.
“American shares are expensive when you look at popular valuation metrics. For example, the S&P 500 index trades on 22.2 times next 12 months’ earnings ... In contrast, the FTSE 100 trades on a mere 12.6 times forward earnings."
