Twin pillars support 2026 outlook
The case for the FTSE 100 in 2026 rests on two pillars: earnings resilience and a more supportive Bank of England (BoE). Both appear likely to contribute positively, even if the journey is expected to be choppier than the strong and steady gains seen during most of 2025. The FTSE 100 – up around 18% year-to-date – outperformed the S&P 500, demonstrating unexpected strength.
Corporate earnings among the UK’s largest listed firms have proven remarkably robust in the face of stubbornly high interest rates, elevated financing costs and a sluggish domestic economy.
Profit margins have held up better than feared as earnings growth has outpaced sales declines, suggesting firms have managed to control costs or reprice sufficiently to sustain profits even with weaker top-line growth.
Productivity and global diversification support earnings
There are signs of productivity recovery – some measured improvement in output per hour/worker compared with pre-pandemic levels, which may help several firms remain competitive.
For certain globally-oriented FTSE 100 sectors (like energy, mining, large multinationals), revenue growth has been more stable because of diversified global operations.
Exporters also benefitted from a weaker pound sterling, which inflated the value of overseas earnings when converted back to sterling.
The gradual diffusion of AI-driven efficiency gains is beginning to benefit UK-listed multinationals as well, supporting margin stability.
While much attention has been on the vast US tech spend, the FTSE’s more mature sectors – from pharmaceuticals to financial services to industrials – are starting to realise operational improvements. These gains support margin stability and help offset cyclical headwinds, laying the groundwork for continued earnings momentum into 2026.
Bank of England easing path opens
On the policy front, the BoE has some room to ease without stoking renewed inflation fears. UK inflation – which rose to around 3.8% in the latter part of 2025 – seems to have renewed its downward trajectory.
This gives policymakers the flexibility to cut interest rates at a measured pace into 2026.