UBS Switzerland AG expects UK equities to rebound strongly over the next two years, forecasting a turnaround in earnings following a bottoming out in 2025.
In its latest outlook, UBS projects UK corporate earnings will contract by 3% in 2025 before staging a meaningful recovery with 5% growth in 2026 and accelerating further to between 15% and 20% in 2027.
The FTSE 100 has shown resilience this year despite muted economic growth, a firm British pound, and elevated interest rates. UBS highlighted that just five companies — mainly in defense, healthcare, banking, and tobacco — have accounted for almost half of the MSCI UK index’s returns so far.
Matthew Gilman, CIO Equity Strategist at UBS, said he expects market gains to become more broad-based as economic conditions improve. The bank set targets of 9,600 for the FTSE 100 by December 2025 and 9,800 by June 2026.
UBS recommends selective positioning in UK equities, prioritizing three themes: companies benefiting from structural transformation (such as IT, industrials, and utilities), undervalued high-quality exporters, and selective exposure to monetary and fiscal policy trends.
The bank recently upgraded its utilities sector view to “Attractive,” citing strong structural growth potential from rising power demand driven by electrification and data center expansion. It also sees opportunities in real estate, supported by expected interest rate cuts.
In its bullish case, UBS believes the FTSE 100 could climb to 10,500 by mid-2026, supported by progress on U.S. trade agreements, diversification by U.S. investors into UK assets, favorable policy responses, higher commodity prices, or a weaker pound.
Conversely, its downside scenario sees the index potentially falling to 7,000 if a global slowdown takes hold, inflation remains sticky, commodity prices drop, or sterling strengthens further.
While UBS holds an optimistic view on UK stocks, it continues to prefer U.S. and Asian markets overall, pointing to their stronger exposure to innovation-led growth.
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