UBS has raised its earnings growth forecast for UK equities to 16% for 2026. This is an increase from an earlier estimate of 11%. The change, announced by Matthew Gilman, head of European equity strategy, is based on strong first-half profits and high commodity prices at the start of the year.
Key Details
Despite this upgrade, UBS keeps a neutral rating on the UK market. This means it does not expect major gains or losses. The bank believes the UK's growth opportunities are better found through specific stock picks instead of the overall index. This view helps explain the limited market leadership seen in the UK over the past 12 to 18 months.
Looking ahead, UBS expects earnings growth to slow to about 9% in 2027. This slowdown is due to tougher comparisons and falling commodity prices. The bank describes the current market valuation as reasonable. It is trading at 12.7 times forecast earnings, compared to a historical median of 12.8 times since 1990. UBS predicts the FTSE 100 will reach 11,200 by December 2026 and 11,500 by June 2027, up from 10,825 in mid-August.
Background
By sector, UBS prefers banks, industrials, consumer discretionary, and healthcare. It has also upgraded European information technology to attractive, noting improved valuations and renewed earnings momentum. In a more positive scenario, UBS estimates the FTSE 100 could reach 12,300 by June 2027. This would be driven by faster global growth, higher commodity prices, or a weaker pound.
Related coverage: Target Reports Q2 Gains, Raises 2026 Sales Outlook.
The updated earnings forecast could boost investor sentiment towards UK equities, especially in the banking and industrial sectors. Higher earnings expectations may lead to more buying activity. Investors will keep an eye on upcoming economic data releases that could affect market performance.
Based on reporting by: proactiveinvestors.co.uk