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Investing.com -- Citigroup has double downgraded United Kingdom equities to "underweight" from "overweight" as the bank sees less favorable conditions for the FTSE 100 amid potential market broadening.
The bank, in a note on Friday cited by Reuters, set a target of 9,300 for the FTSE 100 index by the end of 2025 and 9,700 by mid-2026, implying modest upside potential from current levels.
The bank said the U.K. market’s heavy 50% weighting in defensive sectors as a key reason for the downgrade, suggesting this composition could be disadvantageous in an environment that favors cyclical stocks.
Citi also warned that lower energy prices could create a drag on overall earnings per share for UK equities.
On the macroeconomic front, Citigroup noted that while U.K. economic activity is holding up, the composition of growth raises concerns. The bank pointed out that growth has been supported by frontloading of trade and government spending in the first half of 2025, while consumer strength has been lacking.
Citigroup economists expect U.K. GDP growth of 1.3% in 2025 and 1.0% in 2026. They also highlighted that inflation remains a challenge and is nudging higher. The bank does not anticipate any policy rate cuts this year but expects cuts to resume in 2026.
For earnings, Citigroup forecasts 0% FTSE 100 EPS growth in 2025 and 8% growth in 2026. This contrasts with bottom-up consensus expectations of a 1% contraction in 2025 and 12% growth next year.
The bank’s models suggest the U.K. market is currently pricing in double-digit EPS growth over the next 12 months, significantly higher than analyst forecasts.