The FTSE 100 after the re-rating: what 10,500 buys you — and what it doesn’t.

The FTSE 100 has had a reasonably strong but uneven past six months, sitting on top of a 2025 that exceeded what I would have anticipated. The index rose 21.5% during 2025 — its best calendar year since 2009, when it climbed 22.1% in the aftermath of the financial crisis — and closed the year at 9,931.38, a whisker below the 10,000 mark it had never touched. It did not have to wait long. On the first trading day of 2026 the index broke through 10,000 for the first time in its history, and by 27 February it had printed a record close of 10,910.55 and an all-time intraday high of 10,934.94.

Since then the run has been bumpier. The outbreak of conflict in the Middle East at the end of February pushed energy prices sharply higher, knocked the index back from its records, and only with the June peace framework and the reopening of the Strait of Hormuz has some calm returned. As I write, the index sits at around 10,500 — below February’s peak, but still up strongly over twelve months.

What strikes me most about this rise is what it has had to absorb along the way: domestic political uncertainty, energy price shocks, repeated shifts in expectations for Bank of England policy, and the rolling tariff uncertainty emanating from the Trump administration. A market that climbs 30% or so over two years through that lot is telling you something — and part of what it is telling you is that the index has re-rated meaningfully, a point I will come back to with the charts below.

UK inflation remains above target, as it has been for most of the past five years. The latest ONS data shows CPI at 2.8% in the twelve months to May, unchanged from April and below the 3.0% consensus expected. Core CPI was 2.6%, up marginally from 2.5%, and the number the Bank will be watching most closely — services inflation — jumped from 3.2% to 3.7%.

My expectation for the coming year is that inflation rises through the summer months without running away. The mechanics point that way: the Ofgem price cap is due to rise by around 13% this summer as the energy shock feeds through with a lag, and the Bank itself projects CPI just under 3% in the third quarter and slightly above 3.25% in the fourth. But the peace framework agreed in June has already pulled Brent from around $100 back to the high $70s, and the domestic disinflation process underneath the energy overlay looks broadly intact — food inflation at 2.2% is the lowest since December 2024, goods inflation has slowed to 2.0%, and wage settlements are moderating.

In line with that, I do not expect the Bank of England to raise rates above current levels. Bank Rate sits at 3.75%, held 7–2 in June with two members — Megan Greene and Huw Pill — voting for 4%. I am aware this puts me mildly against part of the market: Bank of America has pencilled in hikes for July and September, and ING has talked of a “one-and-done” rise this summer. But market pricing as of early July has the Bank on hold for the rest of the year, Oxford Economics sees a hold well into 2027, and the majority on the Committee is visibly reluctant to tighten into a loosening labour market and an economy that shrank 0.1% in April. My expectation is that Bank Rate stays roughly where it is — at 3.75% — into the medium term. For equities, a central bank on hold with inflation drifting between 2.5% and 3.25% is not a hostile backdrop. It is, if anything, rather a comfortable one for the sort of companies the FTSE 100 contains.

UK equities remain relatively lowly priced in a global context. The FTSE All-Share stood on a twelve-month forward P/E of 12.3 times as of 24 June, and the average dividend yield on the FTSE 100 was 3.06% as of late May. In a world where investors large and small are looking for reliable cash returns — and where the alternative on offer in the US is a forward multiple in the twenties — that combination remains appealing.

But let us be honest about the direction of travel. The index is, clearly and unsurprisingly, more highly priced than it was twelve months ago — and the point is not simply that the price has risen, but that the price has risen faster than earnings have. My estimate of the trailing P/E of the index has moved from around 14.2 times a year ago to around 16.8 times today, peaking at roughly 17.4 times at the February record.

The full twenty-year, year-by-year P/E history requires a licensed series (LSEG / Datastream: FTSE 100 PE, year-end values 2006–2026). I have deliberately not estimated the missing years.

Two things follow from this. First, the “UK is cheap” argument, while still true relative to the US and to the index’s own recent past, is no longer the table-thumping bargain it was when the trailing multiple sat in the low tens in 2023. On my numbers the index now trades slightly above its long-run median trailing multiple. Second, and more constructively, a market that has re-rated from roughly 10.5 times to roughly 17 times in three years without earnings growth doing the heavy lifting is a market in which the next leg is likely to come from earnings.

We have to keep reminding ourselves that the FTSE 100 is a global marketplace, not a pure UK one. On the revenue-exposure estimates I am working from, around 22% of FTSE 100 constituent revenues come from the United States, around 21% from Asia Pacific and around 16% from Europe excluding the UK — leaving only around a quarter, roughly 26%, generated in domestic UK markets. Other estimates put the overseas share at 75% to 80%, but the conclusion is the same whichever cut you take: an underperforming UK macro economy does not necessarily mean weak earnings for the companies within the FTSE 100, nor for the index as a whole.

That distinction made a big difference in 2025. The UK economy delivered sticky inflation and lacklustre GDP growth, and the domestically-oriented FTSE 250 duly lagged, while the internationally-weighted FTSE 100 outran the S&P 500 — and did so despite sterling rising 7% against the dollar across the year, which is normally a headwind for an index in which around 80% of constituents are multinationals. There is also a geopolitical dimension I think is underappreciated: in a world where America is seen as a less stable and less reliable marketplace, where there is persistent concern about European stagnation, an English-speaking, English-law, non-US market of global businesses is of obvious interest. Capital looking for exactly that, found the London market in 2025, and I see no reason for that flow to reverse quickly.

The index is heavily exposed to banks, healthcare, industrials, energy, consumer staples and miners — the four largest supersectors alone (banks, health care, industrial goods and services, and energy) account for around 53% of index capitalisation. That composition can be a stabiliser or a destabiliser depending entirely on the macroeconomic scenario you feed into it, and the past twelve months make the point better than any argument I could construct.

Miners and banks have carried the index — my mining basket is up around 70% over twelve months and banks around 54% — while data-and-analytics-flavoured industrials have been savaged as the AI narrative wobbled, and consumer staples have gone essentially nowhere. Note the valuations attached to those moves: banks on under 14 times after a 54% run, insurers on under 10 times, against retail and consumer discretionary names on around 25 times.

This is where the double edge sits. If inflation stays contained and net interest margins hold up — and credit losses and impairments do not deteriorate — the banks, still the index’s largest sector, can continue to do well from here. But if inflation rises suddenly and unexpectedly, forcing the rate conversation back open, that same weighting can drive significant downward movement for the index as a whole. The miners and energy companies cut even more sharply both ways. These are businesses with largely fixed operating cost bases, which means higher commodity prices produce exponentially higher profits — margins expand dramatically in the good times — and narrow just as dramatically when prices roll over. The 2025 rally leaned heavily on precious metals: Fresnillo rose roughly fivefold and Endeavour Mining nearly threefold as gold pushed above $4,000 an ounce. Nobody should own the index without understanding that a chunk of its recent performance is, in effect, a leveraged commodity position. When the general direction of the global economy is uncertain, these are precisely the companies likely to do particularly badly.

The strength of the FTSE 100 — its global revenue base — is also a channel for other people’s problems. Weakness in the US economy, or in Asian economies, feeds directly into specific parts of this index: the Asia-focused financials sold off hard in early June on exactly that, with HSBC, Prudential and Standard Chartered falling 5% to 8% in a session. Diversification away from the UK is not diversification away from the world.

The FTSE 100 has underperformed the major US markets since the financial crisis, and the reason is no mystery: US growth since 2008–09 has been skewed heavily towards mega-cap technology, an industry the UK simply does not possess at scale. That absence has been the great cause of the index’s lacklustre long-run results against the NASDAQ, and it remains the index’s central weakness looking forward: very little exposure to the AI revolution, to software growth, or to the major US technology companies that offer great growth potential. If AI capital expenditure converts into the earnings the bulls expect, the FTSE 100 will watch that party through the window, again.

But invert the scenario. If you think US technology is overvalued at this moment — if you think there is a bubble, or at least a valuation problem, in the AI trade — then the FTSE 100’s old-economy DNA stops being a bug and becomes the opportunity. Doubts about AI spending and monetisation made the tech trade volatile through late 2025 and into 2026 — Nvidia is flat year-to-date — and capital rotating out of that concentration has been landing in markets offering tangible value and cash yields. Banks, miners, defence contractors and healthcare businesses now look attractive to global allocators precisely because they are not caught up in the AI hype cycle. Because of its components, the FTSE 100 can fairly be seen as a defensive area — with the important caveat from the previous section that “defensive” here means defensive against a tech de-rating, not defensive against a global downturn. Against the latter, an index this heavy in banks, miners and energy is nothing of the sort.

My position, then, is deliberately two-handed. The FTSE 100 at around 10,500 still offers what it offered eighteen months ago — a 3% cash yield, a forward multiple in the low teens, global revenues, and a genuine alternative for capital nervous about US concentration — but it offers it at a meaningfully higher price, with the trailing multiple now slightly above its own long-run median. The easy part of the re-rating is behind us. From here I want to see earnings delivery, particularly from the banks, and I will be watching three things into the autumn: whether the summer inflation bump stays as contained as I expect; whether the Bank holds at 3.75% as I expect; and whether commodity prices hold the gains that a good part of this index’s performance is quietly built on. Strong, in short — but uneven, and priced accordingly.