FTSE 100 market outlook 2026: earnings resilience and BoE support
The UK benchmark enters next year supported by resilient corporate earnings and Bank of England easing prospects, though volatility is expected to return.
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.
UK inflation with BoE target rate graph
This loosening of financial conditions provides a constructive backdrop for risk assets, particularly for rate-sensitive sectors such as housebuilders, utilities and banks.
A "mild Goldilocks" blend of modest growth and gently easing policy is exactly what the FTSE tends to respond well to historically.
Valuation discount presents opportunity
Concerns around valuation should not be overstated. The FTSE 100 - with a price-to-earnings (P/E) ratio of around 14 - continues to trade at a meaningful discount to global peers.
The S&P 500's P/E ratio of 25 creates a gap that has persisted despite improving earnings visibility for UK companies.
Rather than signalling structural weakness, this discount increasingly reflects an opportunity: strong cash generation, high dividend yields and robust balance sheets remain core attributes.
Meanwhile, the concentration of returns in energy, banks and big pharma simply reflects where the durable earnings are located, with little reason to expect this leadership to falter.
Technical and fundamental alignment
With the UK autumn budget out of the way and corporate buybacks steady, cash levels high and liquidity conditions improving, the FTSE's path of least resistance in 2026 is still higher.
Pullbacks will inevitably occur, as they always do in functioning markets. But the underlying backdrop of stable earnings, supportive monetary policy and strong corporate fundamentals argues for viewing weakness as opportunity rather than a warning sign.
The bull cycle still has room to develop, particularly if international investors continue rotating towards undervalued markets.
The unusually steady over 25% uptrend seen in the FTSE 100 since its 7,545 April low will not persist indefinitely, with volatility expected to return.
FTSE 100 weekly candlestick chart
While the August-to-mid-September highs and October low at 9,357-to-9,277 holds, the long-term uptrend is deemed to stay intact with the psychological 10,000 mark remaining in sight.
If bettered, the 261.8% Fibonacci extension of the October 2022-to-February 2023 6,707.62-to-8,047.06 advance, projected higher from the 7,206.82 March 2023 low, at 10,713.47 would be next in line. It represents another potential technical upside target and lies around 17% above current levels (as of 4/12/2025).
FTSE 100 monthly candlestick chart
Only a currently unexpected bearish reversal and fall through the 9,277 October low may provoke a sell-off towards the 9,200-to-9,000 region which offers solid technical support.
10,000 psychological barrier looms
Even though market participants should remain prepared for sharper moves - both down and up - as the FTSE 100 once more tries to breach the psychological 10,000 mark, the technical and fundamental picture remains bullish.
This round-number milestone represents roughly 3% upside from current levels and is expected to be reached in the first quarter of 2026.
Breaking through 10,000 decisively would likely attract additional momentum-driven buying and international capital flows.
However, achieving this milestone will require continued earnings delivery and supportive macro conditions through 2026.
Investment opportunities for 2026
For investors looking to capitalise on the FTSE 100's supportive fundamental and policy backdrop heading into 2026, several approaches merit consideration.
- Research the FTSE 100's earnings outlook, sector composition, and policy environment to understand the investment case for UK equities.
- Consider how Bank of England policy, corporate earnings, and valuation discounts might support continued index strength.
- Open an account with IG by visiting our website and completing the application process.
- Access FTSE 100 exposure through our platform, including both index products and individual UK shares.
- Consider appropriate diversification and risk management even when fundamental conditions appear supportive.
Share dealing provides direct access to FTSE 100 companies and their attractive dividend yields.
Spread betting and CFD trading offer flexible approaches for trading FTSE 100 movements.
The combination of earnings resilience, monetary policy easing, attractive valuations, and technical momentum creates a constructive outlook for the FTSE 100 in 2026.
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This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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