2025’s been a pretty terrific year for the FTSE 100. The UK’s flagship index has climbed roughly 11% since January, or 14.5% when counting dividends paid along the way. That’s almost double its historical average of 8%. And anyone who put £1,000 to work nine months ago has already earned £145 profit without having to do any work for it.
Of course, past performance isn’t a great predictor of future results. So what can investors now expect as we approach 2026? Here’s how much money could potentially be unlocked by the end of next year, according to the latest forecasts.
Bullish optimism
Despite the challenges facing the British economy, the outlook from most experts is actually quite positive. A big part of this is the relative undervalued state of UK equities. Unlike the US or EU stock market, large-cap companies in the FTSE 100 are mostly trading at low, if not dirt cheap prices, relatively speaking.
This isn’t a new phenomenon. It’s why London-listed stocks have a global reputation for paying out generous dividend yields. And in a world where investors are becoming more cautious due to growing geopolitical and trade policy, stable and chunky dividends are becoming increasingly popular. This is only compounded by the lower reliance on tech stocks, offering insulation against artificial intelligence (AI)-related volatility.
But there are also opportunities for growth investors. The Bank of England’s been cutting interest rates faster than other central banks, creating a more friendly borrowing environment for businesses to fund expansion efforts. And combining this with a weakening pound versus leading currencies like the euro, international earnings of FTSE 100 companies are enjoying an organic tailwind.
As such, the latest projections from The Economy Forecast Agency indicate the FTSE 100 could rise to 10,134 points by December 2026. Compared to where the index is trading today, that represents a 10.2% expected increase. Throw in the extra 3.3% from dividends, and a £1,000 investment today could grow to £1,135 over the next 15 months.
Aiming higher
Forecasts always need to be taken with a pinch of salt since they rely on several assumptions that may simply not come to pass. Nevertheless, they’re still useful tools that serve as a rough guide of what to reasonably expect. And right now, it seems passive index fund investors could continue to enjoy double-digit gains.
However, for intelligent stock pickers, the possible gains could be far more substantial. One potential outperformer could be BAE Systems (LSE:BA.) with one analyst projecting it could climb to as high as 2,500p – a 25% increase from current levels.
Beyond benefiting from the macroeconomic tailwinds, the aerospace & defence enterprise is also riding the tailwinds of record defence spending across Europe. This has led to an enormous order backlog, giving ample visibility to future revenues and earnings. In fact, management’s already raised its profit guidance for 2025.
While encouraging, there are still risks to consider. A reduction in geopolitical tensions could see defence projects delayed or scaled back. And with the share price having already enjoyed some momentum, a slowdown could reverse some of the progress made so far.
In other words, BAE Systems isn’t a guaranteed FTSE 100 winner. But given its potential, it might be a business that investors will want to inspect further.
