The FTSE 100 enters 2026 with several tailwinds that may extend its recent gains, following a strong performance last year. Key developments in UK bond markets and ongoing strength in industrial metals could help sustain momentum across core segments of the index, particularly financials and miners.
Despite a sluggish economic backdrop in 2025, the FTSE managed to climb around 20%, while sterling appreciated roughly 8% against the US dollar. This advance came amid rising unemployment, persistent inflation and stagnating growth. Even so, the UK’s equity benchmark proved resilient, in large part due to its sector composition. Financial stocks and commodity-linked businesses are now positioned to benefit further if current trends continue.
The near-term direction of UK interest rates remains central to this outlook. Although the Bank of England delivered multiple cuts in the second half of 2024 and into 2025, long-term gilt yields remained elevated throughout last year. The 10-year yield hovered close to levels not seen since before the global financial crisis, signalling a market sceptical about near-term disinflation or rapid policy easing. Should rate cuts slow or pause entirely in the months ahead, rising long-term yields may steepen the curve. A steeper curve typically supports bank earnings by enhancing net interest margins, and this would likely be favourable for the FTSE, given its heavy financials exposure.
Metals such as copper, gold and silver surged in 2025 and remain at elevated levels. Higher prices in these markets tend to feed directly into earnings for miners, and this dynamic could provide an additional lift for the broader index in 2026. Historically, the FTSE has shown a strong correlation with copper prices in particular, and the commodity’s continued strength, especially if aided by a weaker US dollar, could reinforce this pattern in the months ahead.
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