FTSE 100 vs. European Benchmarks: Structural Headwinds in a Post-Brexit Era

The FTSE 100’s performance in 2025 has been a study in contrasts. While the index closed at record highs of 9,147.81 points in 2025, driven by a weaker pound and surging commodity stocks [4], it has faced persistent structural challenges that set it apart from its European counterparts. The Euro Stoxx 50, for instance, has shown a more consistent recovery, rising to 547.89 points in 2025 amid lower inflation and less regulatory turbulence [4]. This divergence underscores the unique pressures facing UK blue chips in a post-Brexit landscape.

One immediate drag on the FTSE 100 has been the impact of ex-dividend trades. In late August 2025, the index fell over 38 points as major constituents like Aviva, Glencore, and Croda temporarily lost their dividend entitlements [1]. These periodic corrections, while normal in equity markets, have been amplified by the FTSE 100’s heavy reliance on dividend yields—a feature that becomes a liability when investors rotate out of income-generating assets. Meanwhile, European benchmarks like the DAX have benefited from a more diversified earnings base, with Germany’s industrial and automotive sectors driving gains of over 20% year-to-date [2].

Regulatory scrutiny has further compounded the FTSE 100’s challenges. Drax Group, a key energy player, exemplifies this trend. The company faced a 12% share price drop in August 2025 after the UK’s Financial Conduct Authority (FCA) launched an investigation into its biomass sourcing disclosures [1]. This followed a £25 million fine from Ofgem for misreporting Canadian wood sourcing data [1]. Drax’s woes are emblematic of a broader trend: UK firms navigating a tightening regulatory environment, where compliance costs and reputational risks weigh on margins. In contrast, European peers have faced fewer headline-grabbing regulatory shocks, allowing indices like the Euro Stoxx 50 to maintain a steadier trajectory [4].

Broader macroeconomic factors also highlight the FTSE 100’s vulnerabilities. UK inflation, at 3.6% in June 2025, remains higher than the Eurozone’s 2.0% [1], constraining consumer spending and corporate pricing power. The CBI’s August 2025 report noted “continued negative sentiment” in the UK services sector, a critical component of the economy [1]. European markets, meanwhile, have shown resilience, with the STOXX 600 hitting a two-week high in August 2025 as Germany and France outperformed [3]. This divergence reflects Europe’s more diversified economic structure and less exposure to UK-specific headwinds like US tariff threats [2].

Despite these challenges, the FTSE 100’s multinational exposure and currency-driven returns offer some advantages. A weaker pound has boosted returns for non-sterling investors, while the index’s stable dividend yields remain attractive in a high-yield environment [2]. However, these benefits are increasingly offset by the structural issues outlined above. For investors, the key takeaway is clear: while the FTSE 100’s performance in 2025 has been impressive, its long-term trajectory depends on addressing regulatory, inflationary, and structural inefficiencies that continue to weigh on its relative appeal.

**Source:[1] FTSE 100 Live: Blue-chips sink lower as Drax tumbles [https://www.proactiveinvestors.com/companies/news/1077430/ftse-100-live-london-blue-chips-open-higher-drax-falls-as-watchdog-opens-probe-1077430.html][2] DAX 30 Index vs FTSE 100: Which Is Better for Investors? [https://www.ebc.com/forex/dax-index-vs-ftse--which-is-better-for-investors][3] European Shares Mostly Higher In Cautious Trade; FTSE ... [https://www.nasdaq.com/articles/european-shares-mostly-higher-cautious-trade-ftse-100-underperforms][4] European stocks end mostly higher following lower-than-expected US inflation [https://www.aa.com.tr/en/economy/european-stocks-end-mostly-higher-following-lower-than-expected-us-inflation/3657769]