Average market risk premium in the United Kingdom (UK) 2011-2022

Market risk premiums (MRP) measure the expected return on investment an investor looks to make. For potential investors looking to add to their portfolio, the perfect scenario for a risk-based investment would be a high rate of return with as small a risk as possible. There are three main concepts to MRP’s, including required market risk premiums, historical market risk premiums and expected market risk premiums.

United Kingdom shows little return for risk

Europe wide, Finland had one of the lowest MRP alongside Poland and Germany. Ukraine had average risk premiums of 34 percent in 2022. Having a lower market risk premium may seem bad, but for countries such as the UK and Germany where rates have been consistent for several years, it is because the market is stable as an environment for investment.

Risk free rates

Risk free rates are closely associated to market risk premiums and measure the rate of return on an investment with no risk. As there is no risk associated, the rate of return is lower than that of an MRP. Average risk free rates across Europe are relatively low.