UBS has raised its earnings forecast for UK companies to 16% for the year, up from an earlier estimate of 11%, citing rising energy prices as a key driver. The brokerage expects energy earnings to contribute around 18% of the MSCI UK's earnings this year. However, earnings growth is forecasted to slow to around 9% in 2027 as the commodity tailwind fades.
Matthew Gilman, Head of CIO Europe Equity Strategy at UBS Switzerland AG, noted that the UK's growth opportunities are better accessed through individual stock selection rather than broad market exposure. This accounts for the market's narrow leadership over the preceding 12 to 18 months.
UBS upgraded UK equities to 'Attractive' on an absolute basis following the pullback, but rated them 'Least Preferred' relative to other equity regions. The brokerage prefers the Eurozone over the UK and maintains 'Attractive' ratings on European information technology, industrials, banks, consumer discretionary, and health care sectors.
UBS sets a December 2026 target of 11,200 for the FTSE 100, with a base-case target of 11,500 for June 2027, up from 10,650 on September 15, 2026. The brokerage also sets an upside scenario target of 12,300 for June 2027, contingent on factors such as more rapid global growth, commodity price increases, sterling weakening, U.S. investor diversification into UK assets, or central bank rate cuts resuming. Conversely, a downside scenario target of 7,700 is set, citing risks such as extended Middle East energy disruption, trade war re-emergence, lower commodity prices, sharply higher bond yields, or a stronger pound.
UK equities trade at a forward P/E ratio of 12.4 times, compared to a median of 12.8 times since 1990.
