Why the FTSE 100 could set an all-time high in 2025

The FTSE 100 could hit an all-time high of 9,000 points at the end of 2025 during a period when UK equities look cheap on an earnings and yield basis, according to analysts at investment platform AJ Bell.

Analysts believe dividends, buybacks and takeovers should supplement any capital returns next year, although inflation, monetary policy and commodity prices remain major variables.

During 2024 several companies either decided against listing in Britain or moved their listings abroad. Notably, the Cambridge-based computer chip maker Arm listed in New York last year, in a mammoth flotation. Meanwhile, betting giant Flutter, building materials company CRH and plumbing firm Ferguson have all left the UK markets for the US in recent years.

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AJ Bell investment director Russ Mould said: “After a steady advance of 7 per cent in 2024, the FTSE 100 stands a fraction below the all-time high set in May, and that capital gain comes with dividends, share buybacks and cash inflows from takeovers on top, to confound the prevailing bearish tone of commentary on UK equities, at least to some degree.

The FTSE 100 could hit an all-time high of 9,000 points at the end of 2025 during a period when UK equities look cheap on an earnings and yield basis, according to analysts at investment platform AJ Bell.   (Photo by Jonathan Brady/PA Wire)The FTSE 100 could hit an all-time high of 9,000 points at the end of 2025 during a period when UK equities look cheap on an earnings and yield basis, according to analysts at investment platform AJ Bell.   (Photo by Jonathan Brady/PA Wire)
The FTSE 100 could hit an all-time high of 9,000 points at the end of 2025 during a period when UK equities look cheap on an earnings and yield basis, according to analysts at investment platform AJ Bell. (Photo by Jonathan Brady/PA Wire)

"Total returns from the UK stock market in 2024 handily beat cash, bonds and inflation, but the poor comparisons with the US remain the stick with which the FTSE 100 is constantly beaten.

"Whether the NASDAQ and S&P 500 will finally run out of puff in 2025 remains a matter of debate, but value- and income-seeking contrarians could be forgiven for giving the UK a closer look, given consensus forecasts for earnings and dividend growth.”

The UK stock market lagged the US and many of its global peers in 2024, despite the Bank of England cutting interest rates and a decisive victory for Labour in the General Election.

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Mr Mould added: “No-one seems interested in the UK equity market, other than to bash it for failing to attract more new flotations and the defection of some companies to other exchanges, even if many global rivals suffered a similar dearth of new joiners in 2024.”

He continued: “Such knocking copy persists, even though analysts think the FTSE 100’s aggregate pre-tax income in 2025 will exceed 2018’s pre-Covid peak by £78bn, or some 46 per cent, and that aggregate net, post-tax earnings will be £41bn, or 31 per cent higher.”

UK share prices have certainly have not kept pace with the meteoric rise of US equities in the second half of the year, said Mr Mould. As a result, UK stocks feel unloved and unloved can mean cheap.

Buying cheap, rather than blindly taking risk, is usually the best way of getting good long-term returns, according to Mr Mould.

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“All other things being equal, even an 8 per cent advance in the FTSE 100 to 9,000 would leave the index on a PE of 13.3 and a yield of 3.6 per cent, neither of which looks demanding.

“It would also leave the UK’s premier index with an aggregate stock market capitalisation of around £2.4 trillion, or $3 trillion – less than that of Apple, where the analysts’ consensus forecast net income for 2025 is £87bn.

"This equates to barely half of the consensus estimate for the FTSE 100, which is expected to offer faster profit growth and a higher dividend and total yield for good measure, in cash and percentage terms. Even if investors, institutional or otherwise, remain wary of UK stocks, corporate and financial buyers seem to think there is an opportunity to be had, judging by the number of takeover offers received by UK-listed firms.”

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