The FTSE 100 in 2026: what is driving the rally?
The FTSE 100 entered 2026 at record levels and has continued to push on. Several structural tailwinds have driven outperformance relative to historical norms. European rearmament and increased NATO spending commitments have benefited defence stocks, particularly BAE Systems. A recovery in banking profitability has driven Barclays and NatWest higher, supported through 2022-2025 by higher interest rates widening bank margins.
HSBC’s dominance of Asian wealth management, which benefited from a strong rise in Hong Kong’s Hang Seng index during 2025, has been widely cited as a driver of its own strong share price performance. The FTSE 100 review process has also seen elevated activity, with M&A deals reshaping the index during 2026.
FTSE 100: market context (mid-2026)
18.5% | ~10,910 (flagged) | ~£214.5bn |
FTSE 100 year-to-date return to mid-June 2026, outperforming the S&P 500’s 17.2%. | FTSE 100 52-week high per LSE’s own data (as at 28 August 2026). | AstraZeneca’s market cap. |
UK shares to watch: current standouts
Rolls-Royce Holdings (LSE: RR.)
Rolls-Royce has been the defining FTSE 100 success story of the current cycle. It topped the index's performance in 2023, finished second in 2024 and has added a further 15% in 2026 as of August, according to interactive investor. Its turnaround under CEO Tufan Erginbilgic, centred on margin recovery in civil aerospace and growing defence revenues, has been one of the most watched corporate restructurings in the UK market. Shares recently hit a record 1,424p before pulling back slightly, up approximately 30% since late April. Some analysts question whether the valuation now reflects the full recovery story.
To buy or trade Rolls-Royce shares, visit our Rolls-Royce share page.
Barclays (LSE: BARC)
Barclays has delivered significant gains over the 12 months into 2026, driven by improved profitability, disciplined cost management and the recovery of its investment banking division. Its price-to-earnings ratio remains below the sector average. The bank has also been active on buybacks, supporting its per-share metrics.
See our Barclays share page to invest or trade.
BAE Systems (LSE: BA.)
BAE Systems has drawn significant attention among UK defence shares, given the structural uplift to defence budgets across NATO member states. European rearmament commitments and increasing demand for its naval, land and air systems provide visible, multi-year order book revenue. BAE’s earnings are also relatively predictable by FTSE 100 standards: government defence contracts are long-duration with locked-in revenue.
How to buy UK shares
UK shares listed on the London Stock Exchange are accessible through our share dealing account or stocks and shares ISA. Both provide ownership of the underlying shares, dividend entitlement and shareholder rights. Stamp Duty Reserve Tax of 0.5% applies on UK share purchases. For leveraged, tax-efficient exposure to UK share price movements without ownership, spread betting and CFD trading are available.
Investors who want diversified FTSE 100 exposure in a single trade should consider an iShares Core FTSE 100 ETF or equivalent index tracker, which provides access to all 100 constituents at an ongoing charge of 0.07% per year.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with us. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
What factors drive UK share prices?
Bank of England interest rate decisions: higher rates supported bank margins from 2022-2025; the subsequent cut cycle through 2025-2026 has shifted the emphasis toward rate-sensitive sectors including REITs, utilities and consumer companies
Sterling/dollar movements: approximately 75% of FTSE 100 revenues are earned outside the UK; a weaker pound amplifies translated earnings for international earners like Shell, AstraZeneca and Unilever
Commodity prices: oil and gas prices directly affect Shell and BP; broader commodity markets affect miners including Rio Tinto and Glencore, which together represent a significant FTSE 100 weight
Geopolitical developments: UK defence stocks (BAE Systems, Rolls-Royce, Babcock) respond directly to government spending commitments and global security events
M&A activity: UK equities have been subject to significant acquisition approaches from US and European bidders through 2025-2026, partly reflecting persistent valuation discounts to international peers
Best UK shares to watch: FAQs
What are the best UK shares to buy now?
Based on analyst consensus and 2026 year-to-date performance, the most widely cited FTSE 100 names are Rolls-Royce, Barclays, BAE Systems, GSK, Marks & Spencer and HSBC. These are not personal recommendations. All investments carry risk; capital is at risk and past performance is not a reliable indicator of future results.
How do I buy FTSE 100 shares?
FTSE 100 shares are accessible through our share dealing account or stocks and shares ISA. Search for the company by name or ticker. UK share purchases carry 0.5% Stamp Duty Reserve Tax. For leveraged exposure to UK share price movements, spread bets and CFDs are available.
Are UK shares undervalued?
The UK market has historically traded at a valuation discount to the US. The FTSE 100 P/E ratio has typically been lower than the S&P 500, partly reflecting its sector composition (more energy, financials and consumer staples; less technology). Whether this represents undervaluation or reflects structural differences in sector composition is actively debated among investors. This is not investment advice.
