- AJ Bell FTSE 100 forecast for the end of 2026: 10,750
- UK’s headline index could build on its best year since 2009
- Inflation, monetary policy and commodity prices are key variables
- Dividends, buybacks and takeovers should supplement any capital returns
“Despite torrents of caustic commentary about the paucity of new floats, and far greater number of departures, the UK stock market is on the verge of recording its best annual capital, and total return, since 2009 and outpacing even the S&P 500 in the process this year, let alone cash, bonds or inflation. Investors will now be wondering whether it can build on this momentum in 2026,” says AJ Bell investment director Russ Mould.
“All other things being equal, the omens are currently quite good as analysts forecast 14% profit growth from the FTSE in 2026, and dividend growth and an ongoing share buyback bonanza have the potential to further boost total returns from UK equities.
“The best-performing individual stock markets in 2025 to date are Korea, Colombia, Greece, Poland and South Africa, almost a nap hand for emerging markets, which is itself an interesting shift from the ‘America first, the rest nowhere’ narrative that has dominated for much of the past decade.
“Within the major global indices, emerging markets are leading the pack, too, but the UK is more than holding its own and the FTSE 100 could yet do better than the all-conquering S&P 500 in local currency, capital terms this year. Take dollar weakness against sterling into account and the performance gap between the UK and US would be larger.
Source: LSEG Refinitiv data. *From 31 December 2024 to 12 December 2025, in local currency.
“The UK equity market has been carried by higher corporate profits and generous cash returns to shareholders, with a smattering of merger and acquisition activity on top. Lower interest rates from the Bank of England may have helped, too, even if benchmark government bond yields have not quite stuck to the script as the 10-year gilt yield has barely fallen even as the Monetary Policy Committee has cut the base rate.
“Aggregate pre-tax profits from the FTSE 100 are on course to set a new record in 2025, at just shy of £229 billion, if consensus analysts’ forecasts prove correct. Estimates suggest a further 14% advance is on the cards, to £260 billion.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts
“Best of all, analysts have started to increase their estimates for 2026 and 2027. This is a marked contrast to the pattern of much of the past few years and such momentum, if it continues, could help give further impetus to the FTSE 100, and the wider UK equity market in the coming twelve months.
Source: Company accounts, Marketscreener, analysts' consensus forecasts
“If those profit forecasts are met, that would provide support to analysts’ consensus estimates for 6% dividend growth in 2026, after a couple of years of limited progress. Total FTSE 100 dividend payments are expected to set a new record of £85.6 billion in 2026, finally eclipsing the peak of £85.2 billion set way back in 2018.
“That forecast equates to a 3.4% forward dividend yield for 2026. That is not as plump a figure as it has been, and the comparison between that dividend yield and Bank of England base rates, inflation and the 10-year gilt yield are not as favourable for equities as they have been in recent years.
“This is mainly because the FTSE 100 has moved higher and higher, but it also reflects a mix shift in capital allocation by members of the UK’s elite index, as they lean more heavily on share buybacks.
“Analysts’ consensus forecasts suggest the FTSE 100 will pay out £81 billion in ordinary and special dividends in 2025, with £56.5 billion in share buybacks on top, almost a record. Add together those two and the ‘cash yield’ on the index is 5.5% of its market capitalisation, a figure which does beat inflation, the Bank of England base rate and the 10-year gilt.
“Share buybacks worth £7 billion have already been announced for 2026, to get next year off to a fast start, and the combination of dividends and buybacks could once more serve to underline the appeal of UK equities to income seekers.
Source: Company accounts, Marketscreener, analysts' consensus forecasts
“Further down the market, buyers, be they trade or financial, domestic or overseas, have put in bids for UK-listed companies worth £29 billion in 2025. That is down from the £49 billion in merger and acquisition deals of 2024, to again perhaps reflect how higher prices mean there is less value to be had, but any more M&A activity in 2026 could once more top up the pot for investors in British assets. Lower interest rates, and lower costs of capital, could help here, even if valuations are higher.
“And those higher valuations are one potential obstacle in 2026. By virtue of their gains in 2025, the FTSE 100 and the wider UK equity market are not as cheap as they were.
“That said, the FTSE 100 trades on around 13.5 times consensus analysts’ forecasts for 2026, a figure which is not expensive by historic averages but not ragingly cheap either. However, if analysts keep on upgrading their forecasts, then that multiple could be a little deceptive, as the UK market could be cheaper than it looks at first glance.
“The key here is the source of the earnings forecast upgrades. In 2026, analysts’ consensus estimates suggest that 54% of the FTSE 100’s £260 billion in pre-tax income will hail from just three sectors: Financials (banks, insurers and asset managers), Oils and Miners. A strong operational performance from all three in 2026 can only be good news and earnings estimates for the banks and miners in particular are rising. Sticky inflation could also drive investors toward ‘hard’ assets such as commodities and away from ‘paper’ ones such as cash and government bonds.
Source: Marketscreener, consensus analysts’ forecasts
“Steady global growth would therefore be helpful in 2026, but an unexpected slowdown or recession would be the opposite, as it would probably put into jeopardy dividend growth and share buybacks too, since the last-named in particular tend to be pro-cyclicals.
“In short, the FTSE 100’s profit and dividend mix by sector and by stock means it is a good play on both global growth and inflation, since it is packed by cyclicals, commodity plays and financials, with a bedrock of yield support from utilities and consumer staples underneath.
“A return to the low-growth, low-inflation, low-interest-rate environment of the 2010s would not be ideal for the UK market and would instead favour secular growth and long duration assets such as technology and long-dated government bonds, at least if history is any guide.”
