With the Bank of England having cut interest rates four times in 2025, UK shares delivered their best performance since the 2008 financial crisis. The FTSE 100 was a particular standout performer, generating a staggering 26% total return.
But with more interest rate cuts expected in 2026, could shares be preparing for another massive rally?
Some of the experts seem to think so, with two companies in particular standing out as potentially huge beneficiaries. So which stocks should investors be watching?
1. Incoming rebound for homebuilders
Of all the industries, homebuilding is arguably one of the most directly impacted by changes in interest rates. Why? Because these rates ultimately drive activity within the UK property sector, impacting both affordability and mortgage rates.
So a rate cut bodes well for almost all homebuilders. But Taylor Wimpey (LSE:TW.) seemingly stands out as a popular favourite among the pros.
Despite trading at a discounted valuation, Taylor Wimpey has an unusual advantage over most of its rivals. All of its 2026 building pipeline has secured planning permission, removing a significant regulatory barrier that homebuilders often get stuck behind.
The government’s Planning & Infrastructure Bill is seeking to eliminate this hurdle, which will benefit the entire sector. But regardless, Taylor Wimpey seems to have a head start.
Of course, nothing‘s ever guaranteed. And a national shortage of trained builders, along with material price inflation, is driving up costs. And passing these added expenses to homebuyers could offset any benefit received through interest rate cuts – a risk that investors need to consider carefully.
Nevertheless, with Taylor Wimpey shares already trading at a discounted valuation, the seemingly favourable risk/reward warrants a closer look, in my opinion.
2. Structural compounder
Another sector that enormously benefits from lower interest rates is debt-heavy infrastructure groups. And among these, National Grid‘s (LSE:NG.) on many analysts’ radars.
As the owner and operator of the UK’s energy network, the regulated monopoly serves a mission-critical role that exists regardless of economic conditions. And while regulator Ofgem enforces limits to the group’s profits, interest rate cuts provide a mechanical tailwind that lets the business thrive even with these restrictions.
It’s a bit complicated but, in short, rate cuts reduce the discount rate applied to National Grid’s future cash flows. That increases the net present value of these flows, allowing the business to enjoy a higher return on its infrastructure assets.
Ofgem does adjust its regulatory profit limits downward to protect consumers in this scenario. But when the added benefit of lower debt servicing costs is thrown into the mix, National Grid still ends up with a net financial benefit. And that’s directly paving the way for management to reinvest and build out higher energy grid capacity.
In fact, National Grid’s already in the middle of executing a massive £60bn infrastructure investment programme to fuel long-term growth.
It’s important to recognise that even with interest rate cuts, National Grid still has its fair share of challenges. Executing a massive spending plan is no easy feat with a serious risk of cost overruns and project delays that could ultimately offset any benefit from rate cuts.
Yet, for investors looking for a defensive opportunity among UK shares, National Grid could be worth thinking about.
