UBS remains neutral on U.K. equities amid growth uncertainty

Investing.com -- UBS is maintaining a neutral stance on U.K. equities while recommending selective exposure due to near-term growth uncertainty and currency headwinds for corporate profits.

The investment bank said in a note on Thursday that it expects U.K. earnings to contract further this year with a projected 3% decline in 2025, according to Matthew Gilman, CIO Equity Strategist at UBS Switzerland AG.

However, UBS believes 2025 will mark the bottom, with earnings expected to improve by 5% in 2026 and potentially faster in 2027.

Despite this potential future improvement, UBS suggests it’s too early to look that far ahead given the current uncertain growth environment.

The bank forecasts muted returns from U.K. equities in the near term, with most returns likely coming from the 3.7% dividend yield.

UBS has set a FTSE 100 target of 8,500 for December 2025 and 9,000 for June 2026, compared to the index’s July 22 level of 9,019.

For investors seeking U.K. exposure, UBS recommends focusing on higher-quality, more resilient businesses.

Their sector preferences include information technology, industrials, and real estate, with an emphasis on companies with structural growth exposure to long-term themes or positive European policy developments.

In its upside scenario, UBS sees the FTSE 100 potentially reaching 10,300 by June 2026 if factors like quick U.S.-EU and U.S.-China trade deals materialize, or if commodity prices rise.

Conversely, their downside scenario puts the index at 7,000 if a global economic downturn occurs or if the pound strengthens further.

The bank notes that U.K. equities have already experienced a 17% earnings decline over the past two years, and the market faces limited exposure to structural growth opportunities that could offset negative impacts from trade tariffs.