Is now a good time to back British stocks?

There’s a lot of doom and gloom around the UK economy at the moment, exacerbated by the fallout from the ongoing impasse in the Middle East and in particular the fate of the Strait of Hormuz.

Many fear that the economic landscape spells bad news for British businesses. The Bank of England held UK interest rates at 3.75% last week, but it is caught between the rock of rising inflation and the hard place of a weakening economy.

The FTSE 100, an index of 100 large cap stocks (and some investment trusts) listed in London, fell 5% between 27 February, when it registered its highest-ever close of 10,911, and 1 May.

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Despite two months of turmoil, though, the index gained 4.5% in four months between 31 December 2025 and the end of April 2026. Some UK stocks are even potential beneficiaries of higher oil prices.

And the FTSE 100 was lifted on 6 May by reports that peace talks between the US and Iran were progressing.

“The FTSE 100 has rallied higher, with optimism replacing pessimism, given the ceasefire looks more likely to hold,” said Susannah Streeter, chief investment strategist at wealth manager Wealth Club.

The index had been trading at all-time highs prior to the war’s outbreak. If the fallout remains limited and UK stocks can recover their prior momentum, then recent declines could look like a valuable – but temporary – buying opportunity with hindsight.

Are UK stocks underrated – and if so, how can you gain exposure?

Why invest in UK stocks?

Historically, UK stocks have been a better way to grow your wealth than cash.

The FTSE All-Share Index, a benchmark for the UK stock market, returned 139% over the last 10 years, according to analysis from investing platform AJ Bell - compared to just 20% from cash.

“That’s a compelling reason itself to consider investing, particularly for those able to put money away for the long term,” said Dan Coatsworth, head of markets at AJ Bell.

The UK recently launched a retail investment campaign which, it hopes, will encourage more Brits to start investing. If successful, that could put more money into the UK stock market, and help UK companies raise more capital.

But as Coatsworth points out, “it’s not just about broadening the pool of people to help fund UK company growth plans, but it’s also about building personal wealth”.

Could UK stocks bounce back?

Many investors take a ‘contrarian’ approach – that is, buying stocks or sectors that are relatively undervalued at any given time. This is a form of value investing.

UK stocks appear to fit the bill at present.

“There's no shortage of reasons to be pessimistic about the UK, but with the potential for a US-Iran deal that eventually unlocks Hormuz, we could see a recovery in markets,” said Chris Beauchamp, chief analyst at investing platform IG.

A lot of bad news has been priced into UK stocks’ valuations, and the narrative could swing quickly. That is exemplified by the FTSE 100 gaining over 2% on 6 May, following rumours that a peace deal between the US and Iran was under discussion.

“As investor flows revive, the recovery could be impressive, but extended too, should inflation start to reverse and economic growth recover,” said Beauchamp.

How to invest in UK stocks

One of the simplest ways to invest in UK stocks is through an index fund or exchange-traded fund (ETF) that tracks one of its key indices, such as the FTSE 100 or FTSE 250.

Two low-priced options are the HSBC FTSE 100 UCITS ETF (LON:HUKX) or the Vanguard FTSE 250 UCITS ETF (LON:VMIG), which charge fees of 0.07% and 0.10% respectively.

However, AJ Bell identified ten UK funds and investment trusts that have delivered far superior returns to the index over the past 10 years.

“Investors could have made even bigger gains by picking UK funds with a track record of outperformance,” said AJ Bell’s Coatsworth. “There’s no guarantee these names will continue to smash the ball out of the park, yet their success over a long period suggests they’re not just lucky. They’ve hit upon a formula that works, and patience has yielded big rewards.”

The 10 funds and investment trusts are:

Source: AJ Bell, FE Fundinfo. Data to 9 April 2026. Total return in sterling. *As measured by the BlackRock ICS Sterling Liquidity fund, a proxy for cash.

“Chancellor Rachel Reeves is right to encourage more people to invest in the UK stock market,” said Coatsworth. “The UK has been a more fruitful place to make money than its unloved reputation would suggest.”