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Despite suffering some turbulence in the first half of 2025, the FTSE 100 has already surpassed its average annual gain, delivering close to 10% returns for index investors.
Considering the evolving geopolitical turmoil and continued economic headwinds, Britain’s largest companies continue to demonstrate their resilience. And if the analyst team at The Economy Forecast Agency’s correct, we might see the UK’s flagship index surpass the coveted 10,000-point threshold for the first time by December this year.
What’s behind the forecast?
Forecasts always need to be taken with a pinch of salt. And it’s worth highlighting that other analysts aren’t as optimistic. For example, AJ Bell expects the FTSE 100 to only reach 9,000 points over the next six months. Nevertheless, there are some common bullish themes among financial institutions:
- Large-cap UK shares are currently among the cheapest among developed markets.
- Earnings are expected to continue growing into 2026 and 2027, potentially sparking renewed positive sentiment among investors.
- The Bank of England could deliver faster interest rate cuts compared to the Federal Reserve.
- The British political and trade environment looks relatively more stable compared to other developed markets.
- A weakening pound makes British stocks more attractive to investors as around 75% of FTSE 100 revenues come from outside the UK, translating into higher GBP earnings.
Possible headwinds
Many FTSE 100 mining, banking, and luxury product enterprises are dependent on Chinese markets, where growth has been steadily slowing over the years. Meanwhile, back at home, UK GDP projections for 2025 by the OBR, the IMF, and the OECD have all been slashed to around 1-1.4% versus the previous 1.6-2% range.
Weak domestic economic growth’s one of the main reasons why UK shares have been relatively unpopular on the international stage over the last decade. So with that in mind, a 10,000-point projection for the FTSE 100 might indeed be a bit too optimistic, at least within the next six months.
Opportunities for growth
While the FTSE 100 might not be on the verge of delivering another double-digit gain in the next six months, some of its constituents might. For example, Melrose Industries (LSE:MRO) looks particularly well-positioned right now.
The aerospace & defence enterprise is in the middle of executing a corporate restructuring, which adds complexity to the financial statements. But digging deeper reveals rapid margin expansion as well as higher free cash flow generation.
The continued rebound of the airline industry has certainly helped boost sales. And with geopolitical tensions escalating, its defence-focused segments, which supply components to F-35 fighter jets and Chinook helicopters, among others, could also enjoy a surge in its order book.
With that in mind, the average consensus for the FTSE 100 stock is a 30% potential uplift over the next 12 months. However, just like the other forecasts, this isn’t set in stone. Economic slowdowns combined with rising oil prices are a significant headwind for the commercial air travel industry, where Melrose still generates around two-thirds of its income.
A downturn in airline activity likely means fewer new aircraft orders along with a smaller need for new parts and services. In other words, Melrose may still potentially disappoint investors. Nevertheless, its cheap valuation makes this a risk worth considering, in my opinion. That’s why I’ve already bought some of the shares.
