Twin pillars underpin 2026 outlook
The FTSE 100 rose by over 20% in 2025 – marking its strongest annual performance since 2009 – and significantly outperformed many global peers, even in the US.
The investment case for the UK blue chip benchmark in 2026 – now that it has breached its psychological 10,000 barrier and is seen trading in record highs – is anchored by two key forces: resilient corporate earnings and a gradually more supportive Bank of England (BoE). Together, these factors should continue to underpin the index, even if the path may prove to be less smooth than the post April 2025’s advance.
UK blue-chip companies have demonstrated notable earnings durability despite a challenging backdrop of elevated interest rates, higher financing costs and subdued domestic growth.
Profit margins have held up better than many had feared, with earnings growth outstripping declines in revenues. This suggests companies have successfully managed costs, improved efficiency or adjusted pricing to protect profitability even as top-line momentum softened.
Productivity and global exposure support earnings
Encouraging signs of a productivity recovery are emerging, with incremental improvements in output per worker compared with pre-pandemic levels. These gains may help certain firms maintain competitiveness even in a slower-growth environment.
For globally diversified sectors – including energy, mining and multinationals – revenue trends have been more stable, reflecting broad international exposure.
A weaker British pound has supported earnings by boosting the sterling value of overseas revenues. At the same time AI-driven efficiency improvements are gradually filtering through UK-listed multinationals, helping stabilise margins.
While investor focus in 2025 has largely been on the scale of US technology spending, the FTSE’s more mature sectors – ranging from pharmaceuticals and financial services to industrials – are beginning to realise operational improvements of their own. These efficiency gains are helping to offset cyclical pressures and are laying the foundations for continued earnings momentum in 2026.
Bank of England easing becomes more plausible
From a policy perspective, the BoE appears to have scope to ease without reigniting inflation concerns.
UK inflation, which climbed to around 3.8% in the latter part of 2025, has shown signs of resuming its downward trend. This provides policymakers with greater flexibility to continue cutting interest rates at a measured pace.
A gradual loosening of financial conditions would offer a constructive backdrop for equities, particularly interest-rate-sensitive sectors such as housebuilders, utilities and banks.
Historically, the FTSE 100 has responded well to a “mild Goldilocks” environment characterised by modest growth and gently easing monetary policy.
Valuation discount remains compelling
Valuation concerns appear overstated. The FTSE 100, trading on a price-to-earnings (P/E) of around 14, continues to sit at a notable discount to global peers. By comparison, the S&P 500 trades closer to 25 times earnings, a gap that has persisted despite improving earnings visibility among UK companies.
Rather than signalling structural weakness, this discount for many investors looks like an opportunity. Strong cash generation, attractive dividend yields and robust balance sheets remain defining features of the UK market.
The concentration of returns in energy, banking and large pharmaceutical stocks simply reflects where the most durable earnings streams are found, with little evidence to suggest this leadership is nearing exhaustion.
Technical and fundamental forces align
The FTSE 100 enters 2026 on solid foundations.
With the UK autumn budget behind markets and liquidity improving, the FTSE 100’s path of least resistance in early 2026 remains higher.
As long as the August-September highs and October low between 9,357 and 9,277 hold, the technical structure points higher.
Periodic pullbacks are inevitable, but the broader combination of stable earnings, supportive policy and strong fundamentals argues for viewing weakness as opportunity rather than a warning sign.
The bull cycle that began in 2022 still appears to have scope to extend, particularly if international investors continue to rotate towards undervalued markets.
While the exceptionally smooth rally of more than 25% since the April 2025 low at 7,545 is unlikely to persist, the long-term uptrend remains intact.
Now that the psychological 10,000 milestone has been overcome, a 161.8% Fibonacci extension target at 11,405 represents the next potential upside target, equivalent to a 14% rise from current levels (as of 02/01/2026).