FTSE 100 outlook amid potential tariff threat: what's next for the UK's leading index
Britain's blue-chip index continues to lag global peers, but avoidance of US tariffs, value credentials and high dividend yields could provide support in the months ahead.
The UK blue chip index nonetheless hit a record high at 8,692 in late January.
The rotation out of expensive US stocks, particularly as US dollar strength makes them more costly, has benefited both UK and European markets. This trend could continue to support FTSE 100 performance throughout 2025 with it perhaps outperforming US stock indices such as the S&P 500 and Nasdaq 100 in the weeks and months to come.
FTSE 100 versus peers year-to-date comparison chart
Banking stocks started 2025 on a strong footing
Banking stocks, which make up a significant portion of the index, have performed well amid expectations of interest rate cuts by the Bank of England (BoE) with a 25-basis point rate cut to 4.50% expected for Thursday 6 February.
With December 2024 showing a slight decrease in annual inflation to 2.5% from November's 2.6%, with core inflation dropping to 3.2% from 3.5%, this easing of inflationary pressures led to increased investor optimism, benefiting financial stocks.
BoE announcement of a one-year delay in implementing the Basel 3.1 capital rules, now set for January 1, 2027 provided temporary relief to banks, as it allows more time to adjust to the forthcoming regulations.
Furthermore, the UK blue chip index's high dividend yield continues to attract income-seeking investors, despite the possibility of US tariffs on UK imports troubling some investors.
Value proposition versus growth markets
The FTSE 100's traditional value tilt has been both a blessing and a curse. While it has meant missing out on the AI-driven rally that has powered US markets higher, it also provides some protection against potential growth stock corrections, as seen last week and, again on Monday, when President Trump imposed 25% tariffs on Canadian and Mexican imports and 10% on Chinese goods before agreeing to a 30-day pause on the 25% tariff.
Energy and mining companies, which form a substantial part of the FTSE 100, continue to benefit from relatively stable commodity prices. However, these sectors remain vulnerable to concerns about Chinese demand, global growth prospects and President Trump’s policy decisions.
Technical outlook and key levels
The FTSE 100, alongside its US and European peers, gapped lower on Monday morning amid President Trump’s tariffs on Canada, China and Mexico before attempting to close these price gaps once a 30-day moratorium has been put into place.
The subsequent rally in the FTSE 100 took it to 8,623, not quite closing its daily chart price gap with Friday’s 8,627 low. Therefore the possibility of a break away gap being formed remains in play. Such a gap could denote a change in the medium-term trend from bullish to bearish.
The risk of at least an interim top forming remains high since the January peak has been accompanied by negative divergence on the daily Relative Strength Index (RSI) which did not confirm the late January high as it made a lower high on the oscillator. Such negative divergence more often than not points to at least a short-term correction in the trend. In some cases it even precedes a major trend reversal.
FTSE 100 daily candlestick chart
Immediate support sits between Monday’s 8,509 low and the 8,478 May 2024 peak. While it underpins, the December-to-January uptrend remains intact.
Closure of the 8,627-to-8,623 price gap would probably indicate that buyers continue to find the FTSE 100 attractive with a new all-time high at 8,700 and above likely to be on the cards. Such an advance may lead to the psychological 9,000 mark being reached in the course of 2025.
Were the 8,509-to-8,478 support area to give way, the next lower key 8,426-to-8,364 support zone, a previous resistance area, may be revisited. The medium-term bullish outlook will stay intact as long as the FTSE 100 remains above its June 2024 high at 8,364.
Market catalysts ahead
The FTSE 100 maintains its position as one of the highest-yielding major indices globally. Share dealing investors continue to find value in the index's consistent dividend payments, particularly in the current environment.
Many constituents have strong dividend coverage ratios and healthy balance sheets, suggesting potential for continued shareholder returns despite economic uncertainties.
Several factors could influence the FTSE 100's performance in the coming months:
- Bank of England monetary policy decisions
- Corporate earnings momentum
- Possible US tariffs on UK goods
- Global economic growth outlook
- Chinese economic recovery
- Relative strength of sterling
How to trade the FTSE 100
- Research the market thoroughly and keep up with economic news
- Choose whether you want to trade or invest
- Open an account with us
- Search for 'FTSE 100' in our platform
- Place your trade
Whether through direct index trading or stock selection, the FTSE 100 remains a crucial barometer of both UK and global market sentiment.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Seize your opportunity
Deal on the world’s stock indices today.
- Trade on rising or falling markets
- Get one-point spreads on the FTSE 100
- Unrivalled 24-hour pricing
See opportunity on an index?
Try a risk-free trade in your demo account, and see whether you’re on to something.
- Log in to your demo
- Try a risk-free trade
- See whether your hunch pays off
See opportunity on an index?
Don’t miss your chance – upgrade to a live account to take advantage.
- Get spreads from one point on the FTSE 100
- Trade more 24-hour indices than any other provider
- Analyse and deal seamlessly on smart, fast charts
See opportunity on an index?
Don’t miss your chance. Log in to take your position.
Live prices on most popular markets
- Equities
- Indices
- Forex
- Commodities
Prices above are subject to our website terms and agreements. Prices are indicative only. All share prices are delayed by at least 15 minutes.
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.
