The FTSE 100 Index began 2026 with a bang, breaching 10,000 points for the first time ever. Investor sentiment was rattled during January by mounting geopolitical tensions and surging gold prices as US President Donald Trump set his sights on Greenland.
- UK equity indices were boosted by demand for defence stocks
- The UK economy grew by 0.3% in November
- Sentiment towards UK equity funds showed signs of improvement
Geopolitical tensions: the FTSE 100 Index began 2026 with a bang, breaching 10,000 points for the first time ever. Investor sentiment was rattled during January by mounting geopolitical tensions and surging gold prices as US President Donald Trump set his sights on Greenland. Threats of higher tariffs on several European countries, including the UK, raised fears that the US/UK “special relationship” might be in decline, although tensions died down towards the end of the month. Elsewhere, a speech by Bank of England (BoE) Governor Andrew Bailey urged multilateral institutions to be prepared to fight for the “international rules-based system” and against the “rise of so-called populism”. The blue chip index rose by 2.9% over January, boosted by its exposure to the mining and defence sectors. Meanwhile, the FTSE 250 Index rose by 3.5% over the month, lifted by an encouraging trading update from Computacenter , alongside exposure to mining companies.
“Investors may be ‘reassessing the UK market’s prospects’” (Investment Association)
Growth forecast to pick up: the UK economy expanded by 0.3% in November, underpinned by stronger activity in the services sector and the normalisation of activity in in car manufacturing. Higher air fares and increased prices for alcohol and tobacco drove up the annualised rate of inflation from 3.2% to 3.4%, which posted its first annualised increase since June. Looking ahead, the International Monetary Fund expects UK economic growth of 1.3% in 2025 and 1.5% in 2026, and inflation is forecast to return to the BoE’s 2% target by the end of this year, dampened by a weakening labour market.
Share buybacks surged in 2025: dividends paid by UK companies – excluding the impact of a strong pound and special dividends – rose by 3.6% to £84.7 billion during 2025, according to Computershare’s quarterly Dividend Monitor . Dividend growth was driven by payouts from companies in the industrial goods & support sector and the financials sector, and defence contractors Rolls Royce and BAE Systems were notable individual contributors. Share buybacks reached a provisional £63.6 billion over the year, more than twice their 2019 level; whereas dividends fell by 13% over the same period.
Signs of improving sentiment towards UK equity funds: investors may be “reassessing the UK market’s prospects” according to the Investment Association (IA) . The IA reported the smallest outflows for the sector since May, and a “rare” inflow of £52 million into actively managed UK equity funds.
To view the series of market updates through January, click here
