Could the FTSE still reach 10,000 by the end of 2025 – or will gloomy economic data scupper Santa rally?

The FTSE 100 has teetered on the edge of 10,000 points for the past few months, but is yet to reach the milestone which is psychologically important for investors.

It has had a robust year, outperforming major US indices and trading up nearly 20 per cent in the year to date.

Ahead of the Budget, the blue-chip index was within touching distance of 10,000 points, but a series of gloomy economic data has dented hopes of an end-of-year ‘Santa rally’. The FTSE is currently trading at around 9,850 points.

While another rate cut last week sent the FTSE higher, news that the economy slowed to 0.1 per cent in the third quarter meant the index opened down 40 points on Monday.

With the macroeconomic picture looking less than rosy, will the FTSE fly or flounder before the year-end? 

London defies AI gloom

The London market has defied the AI bubble gloom that has taken hold of most developed markets, in part because it does not have a significant weighting towards tech stocks.

Tech companies make up just 3.5 per cent of the FTSE 100 compared with around a third of the S&P 500.

Investors with heavy tech exposure in their portfolios have looked to the FTSE for diversification, and lower valuations have helped push the index higher.

Defensive-style companies have thrived in these conditions, with gold miners performing particularly well as investors look for exposure to the precious metal. 

Miner Fresnillo has soared by nearly 400 per cent in the year-to-date, while Endeavour Mining is trading up 168 per cent.

All of this propelled the FTSE 100 to new highs, prompting speculation that it could reach 10,000 by year-end.

Before the Budget, analysts were confident that the FTSE would surpass 10,000 by the end of 2025, but it has stumbled.

However, that’s not to say that a Santa rally couldn’t push it to a new record high.

‘December is often regarded as a good month for investors, particularly if you get some sort of Santa rally, so there is a chance that it does hit the five figures before the New Year bells toll,’ says Jonathan Raymond, investment manager at Quilter Cheviot. 

‘It would certainly be a welcome end to the year, but in reality it will be more symbolic.’

Commodity stocks, which make up around a fifth of the index, are likely to have the biggest impact on whether the FTSE will reach 10,000 by the start of 2026, says Keith Bowman, equity analyst at Interactive Investor.

‘To the upside, hopes for further cuts in US interest rates are aiding the performance of precious metals, with FTSE 100 constituents Fresnillo and Endeavour Mining both significantly benefiting year-to-date.

‘On the downside, fears for global economic growth and a glut in oil have most recently weighed on index members BP and Shell, which have fallen 6 per cent and 3 per cent respectively over the last month.’

He adds: ‘For now, and while other factors will impact, moves in commodity prices are likely to prove significant in where the FTSE 100 index goes from here.’

Others are more sceptical of a turnaround over the course of just over a week, particularly in a difficult trading environment, but say 2026 could prove fruitful.

‘There wasn’t a lot of bullish commentary on the UK market at the start of the year, and there still isn’t much now, given the focus still seems to be on the lack of IPOs, net fund outflows and the turgid economy, so it’s quite possible, as the sceptics have yet to capitulate and turn positive,’ says Russ Mould, investment director at AJ Bell. 

‘If interest rate cuts come and the dividends and buybacks keep flowing, they could all help, too, at least for next year, especially as the UK market is trading at historically very wide discounts to its US equivalent on a valuation basis.’

Where will the index head in 2026?  

The outlook for next year is mixed. While falling interest rates will help equities, the broader economic picture looks trickier to navigate.

Inflation is still above the Bank of England’s target, while economic growth is expected to be weaker.

The FTSE 100 is largely protected from domestic concerns, though, and a weaker pound could spell good news for the index, because three-quarters of earnings come from outside of the UK.

Quilter’s Raymond says: ‘With 2026 looking equally as volatile from a geopolitical perspective, and interest rates continuing to fall, albeit more gradual than previously expected, the UK market has a chance to prove its resilience once again and show it can provide strong returns during uncertain times.’

The analyst consensus suggests the FTSE 100 will reach 10,800 by the end of next year.

That is partly driven by aggregate pre-tax profits, which are expected to reach a new record in 2026, with analysts increasing their estimates for 2026 and 2027.

Higher dividends and increased share buybacks will also help to drive momentum in the new year, says Mould.

‘The FTSE 100’s profit and dividend mix by sector and by stock means it is a good play on both global growth and inflation, since it is packed by cyclicals, commodity plays and financials, with a bedrock of yield support from utilities and consumer staples underneath.

‘A return to the low-growth, low-inflation, low-interest-rate environment of the 2010s would not be ideal for the UK market and would instead favour secular growth and long duration assets such as technology and long-dated government bonds, at least if history is any guide.’