FTSE 100 Eyes 10% Gain as 2025 Unfolds

The FTSE 100 marked a positive start to 2025, as market participants expressed confidence in the index amid improving economic conditions and potential interest rate cuts.

Positive Start to The Year

The UK premier index climbed 1.1% during the first trading session of 2025 in relatively light trading, though some gains retreated shortly after. Raw materials led the advance, with mining stocks benefiting from rising gold prices while energy names gained ground on expectations of higher Chinese crude demand. Following four straight years of gains, traders remained attentive to headwinds despite the promising start. The exposure of FTSE 100 to international markets through its heavyweight multinational constituents could benefit from a general shift towards monetary easing. Meanwhile, domestic companies could receive a boost as markets price in at least 50 basis points of rate cuts from the BOE this year.

The weak performance recently spotted in Footsie has resulted in more attractive valuations in the UK than in other indices, particularly those in the US. Market analysts point out that European equities trade at a 5% discount relative to their American counterparts, which could draw investor interest. The anticipated interest rate cuts could provide additional support to UK homebuilders, a sector that faced significant pressure last year, potentially contributing to broader gains for the index.

Forecasts Face Headwinds

A late 2023 market survey showed more than two-thirds of participants expected the UK's top 100 stock index to gain this year. AJ Bell forecasted prices reaching as high as the 9,000 handle over the next twelve months, suggesting a 10% upside for the FTSE 100. UBS reported an even more optimistic scenario of 9,900 due to higher commodity prices and weakness in sterling. However, their bearish scenario of 6,600 also considers the risk of sticky inflation preventing the BOE from easing as much as investors hope.

In that line of thinking, UK stocks underperformed at the start of the first full trading week after business confidence fell to a two-year low. Higher taxes from the Budget are expected to increase costs for businesses and potentially fuel inflation or squeeze margins, stirring concern among business leaders. Key Christmas trading figures are also likely to be lower than the prior year. Investors might exercise caution ahead of a series of key data releases and the upcoming earnings season, which could better shape full-year expectations, particularly once data from the holiday period shows how consumer behaviour played out.

Footsie Completes Triangle?

The FTSE 100 has carved out a symmetrical triangle on the daily chart, suggesting a potential breakout above the 8390 swing. The pattern shows a series of lower peaks and higher troughs in an upward trend, hinting at a bullish breakout past 8480 and towards the 9000 handle. Conversely, support below 8155 and 7995 remains at 7910. Should prices invalidate the triangle formation, the subsequent breakdown could open the door to lower levels.

Source: SpreadEx / UK 100

Key Takeaways

A strong start to 2025 for the UK’s Footsie signals potential growth amid attractive valuations and expected easing by the BOE. While the technical setup also suggests near-term upside potential, multiple factors warrant attention. The combination of general monetary easing, domestic economic data and business sentiment will likely shape the direction of the UK 100 index throughout the year. Despite optimistic projections suggesting possible gains of up to 10%, persistent inflation risks and business concerns could temper the upside potential.