Can The FTSE 100 Reach 10,000 in 2025?

UK Inflation Trending the Wrong Way?

Just recently, the Office of National Statistics (ONS) published UK’s June inflation statistic. Unexpectedly, the Consumer Price Index (CPI) rose to 3.6 percent in the 12 months to June, up from 3.4 percent in May. If housing costs are included, the CPIH rose to a higher level, to 4.1 percent.

Ignoring all the background noise, the trend of the UK inflation rate is clear: It is advancing. The price index bottomed out in the middle of 2024 and has, over the past year, inched higher (and higher) above the BoE’s 2 percent target. The figure of 3.6 percent is the highest level since early 2024.

Long, cyclical economic trends typically start as a short one. As time goes by, the trend persists, until one day investors realise that the old trend is gone for good. Are investors making the same mistake about UK inflation, that the CPI will return to 2 percent?

Source: ONS/BBC

If we take another statistic from the ONS, the Price Index of Private Rents (PIPR), the trend there tells the same thing. The latest report (published 16 July) reads: “Average UK monthly private rents increased by 6.7%, to £1,344, in the 12 months to June 2025 (provisional estimate).” Casting our attention a little further back on the same dataset, this PIRP has not dropped below 5 percent since September 2022. Housing in England is expensive, and becoming more so by the quarter.

Real weekly earnings in the UK, however, is only hovering at around 1 percent (March-May). Meanwhile, job vacancies are dropping to the lowest level since 2021. In effect, the latest UK economic story is becoming less bright, in that consumers are battling the impact of inflation in a weakening job market.

Persistent inflation and weakening growth do not make a good combination. Ergo, investors are edgy about holding government bonds (gilts), since inflation erodes the real value of fixed coupons while weak growth reduces tax receipts.

Look at the iShares Core UK Gilts (IGLT). Prices have been trapped in between 9.5-10.0 for some time, with each reaction high lower than the one before. The fact that the ETF is still fighting to bounce off the major support at 9.5 is a sign that investors are not keen about buying the asset. If inflation readings worsen, a major downside breakout is possible. In other words, interest rate may shoot back up. Technically, a sustained rally above 10 is needed to counter the bearish technical outlook.

As an aside, the US Government bonds ETF (TLT) also displays a similar negative chart outlook.

FTSE 100 reached 9,000!

If investors are downbeat on bonds, what are they bullish on? Equities.

Last week, the FTSE 100 Index touched the major level 9,000 for the first time. The index’s long-term price trend is unmistakably bullish. Gains are rapid and are sustained by many large blue-chip stocks advancing to new multi-year highs.

Barclays (BARC), for example, rose to decade highs, as did the EM-focussed bank Standard Chartered (STAN), insurer Aviva (AV.), Experian (EXPN),  Weir Group (WEIR), and IMI (IMI). Even Tesco (TSCO) managed to overcome the £4 psychological level for the first time in years.

Of course, not all UK stocks rallied. Some underperformed the FTSE 100 and regressed to their 52-week lows, eg housebuilders. Barratt (BTRW), one of UK largest residential developers, is trading at its lowest level since late 2022. Elevated interest rates may continue undermine these capital-intensive sectors.

Still, the overall trend is distinctly positive and the FTSE 100 is continuing its bull run with a potential to reach the significant milestone at 10,000. On clinching this level, it would mark a 10x return since the index began in 1984 at the base level of 1,000.

FTSE Rallies with Low Institutional Participation

One interesting point regarding the bull run in UK large-cap stocks is that few pension funds are in it.

Look at this chart below, as published recently by the Financial Times columnist Katie Martin (link, £). Two trends are worth noting.

One, since the turn of the century, UK pension funds have been actively pruning their UK equity exposure. Previously, more than 50 percent of assets were in UK stocks; now, less than ten.

Two, pension funds’ exposure to non-UK equities have surged after the pandemic. This means that the reduction in bonds allocation went to non-UK stocks and other assets, not British equities.

But if the FTSE 100 keeps appreciating like it did in the past year, would these funds be tempted to rotate back into the UK stocks? Perhaps. These funds normally take some time to adjust their portfolios. By the time they increase their weights on UK equities, the initial phase of the rally (where best returns are made) could be over.

However these funds could well carry the second leg of the rally, when FTSE 100 trades at five-digit level (above 10,000).

Source: Financial Times (Katie Martin)

Naturally, long-term investors will object to higher fund allocation to UK equities. The market in London is far less liquid than the US and there are no major tech stars in the LSE. Even Wise (WISE) is looking to migrate its primary listing to America. So what’s the point in buying British when US stocks are doing far better? Since 1984, a period of 41 years, FTSE 100 rose 9x (1,000 to 9,000). The same period saw the S&P 500 rose from 160 to 6,300 – a gain of 39x!

Another case in point: Nvidia (NVDA). The largest company on earth is now worth $4 trillion and prices are still rolling higher. Moreover, the AI revolution is happening in the US and not here.

All true. But for individual investors, diversification is imperative. Under President Trump, the US dollar is weakening. A further rally in UK stocks may level some of the disparity in performance (from the perspective of Sterling holders). Certainly, one should not give up on the FTSE yet, as the bull run here is not over.