TL;DR: Britain’s economy may feel sluggish, but the UK’s biggest share index has been setting records. That is not as contradictory as it sounds. The FTSE 100 is not a simple measure of life on Britain’s high streets. It is a collection of large, internationally exposed companies whose fortunes are tied to commodities, currencies, defence spending and the global economy.
The short version
Sources: Reuters, The Guardian and Morningstar.
What has actually happened?
The FTSE 100 had its strongest calendar year since 2009 in 2025, gaining 21.5%. It then broke through the psychologically important 10,000-point mark on the first trading day of 2026.
The rally did not stop there. The index touched a record intraday high of 10,951.06 on 29 July. On 12 August, it stood at roughly 10,848.75, while the more domestically focused FTSE 250 was around 24,916.
Those are price-index figures, so they do not include the full benefit of dividends. For a long-term investor, total return matters more than the headline number on the evening news.
The FTSE 100 is not the UK economy
This is the most important point. The FTSE 100 contains the largest companies listed in London, but many of them are global businesses. Roughly three quarters of their revenue is commonly estimated to come from outside the UK.
Shell sells energy worldwide. HSBC operates across international markets. Rio Tinto and Glencore respond to global commodity demand. AstraZeneca sells medicines around the world. Their share prices can rise even while British consumers, retailers or small businesses are having a difficult year.
A weaker pound can also help some of these companies. Overseas earnings become worth more when translated back into sterling, although currency movements affect different businesses in different ways.
What is driving the rise?
1. Miners and precious metals
London’s market has much more exposure to mining than the major US indices. Rising gold, silver and other commodity prices have therefore had an outsized effect. Fresnillo was one of the spectacular winners of 2025 as precious-metal prices surged.
That cuts both ways. Commodity producers are cyclical, and a fall in metals prices or weaker global demand could reverse part of the move.
2. Defence and aerospace
European governments have committed more money to defence, supporting companies such as BAE Systems, Rolls-Royce and Babcock. This has become one of the clearest structural themes in the UK market, although valuations and political expectations can change quickly.
3. Banks and financial companies
Higher interest rates improved lending margins for many banks, while strong capital positions allowed some to return cash through dividends and share buybacks. The FTSE 100’s substantial financial-sector weighting meant those gains mattered to the whole index.
4. Energy
Oil and gas companies remain much more important in the FTSE 100 than in some other developed-market indices. Energy prices, geopolitical tension and shareholder distributions from Shell and BP can all move the index. This exposure can provide diversification, but it adds commodity and political risk too.
5. Cheaper valuations and dividends
UK shares spent years trading at a discount to the US market. That did not guarantee a recovery, but it left room for investors to reconsider profitable, cash-generative companies that had been overlooked. The FTSE’s dividend culture also appealed to investors seeking income and businesses with tangible cash flow.
6. Investors wanted something beyond US technology
The US market has been dominated by a small group of huge technology companies. As investors looked for cheaper markets and different sources of return, the UK’s banks, miners, pharmaceutical companies and industrial businesses suddenly looked useful rather than old-fashioned.
The FTSE’s supposedly “boring” sector mix became a strength when the market started rewarding cash flow, income, commodities and defence.
FTSE 100 versus FTSE 250
| FTSE 100 | FTSE 250 | |
|---|---|---|
| Companies | The largest 100 eligible London-listed companies | The next 250 companies below them |
| Revenue exposure | Heavily international | Generally more UK-focused |
| Major influences | Commodities, banks, energy, pharmaceuticals, defence and sterling | UK interest rates, consumers, housing and domestic business conditions |
| Typical character | Larger, more mature and often higher-yielding | Mid-sized businesses with more domestic sensitivity and growth potential |
If you want to understand the condition of corporate Britain, the FTSE 250 can sometimes be more revealing. Even then, neither index is a complete economic dashboard.
Does a record high mean the market is expensive?
Not necessarily. Stock indices tend to reach repeated records over long periods because profitable companies grow, pay dividends and replace weaker constituents. The level of an index alone tells you very little about valuation.
Useful questions include:
- How much are investors paying relative to earnings and cash flow?
- Are profits sustainable?
- How concentrated is the index?
- What happens if commodity prices or interest rates move against its biggest sectors?
- What role does the investment play in a diversified portfolio?
The danger is chasing last year’s winners simply because the chart looks exciting. Banks, miners, defence companies and oil producers can all suffer sharp reversals when the economic or political backdrop changes.
What should a UK investor take from this?
- Do not confuse familiarity with diversification. Owning a FTSE tracker gives exposure to many companies, but it is still concentrated in particular sectors and misses much of the world’s technology sector.
- Consider global exposure. A global index fund can reduce home bias, while a UK fund can be used deliberately for income or valuation exposure.
- Look at total return. Dividends are a substantial part of the long-run case for UK shares. Compare funds on a consistent basis and decide whether income should be paid out or reinvested.
- Watch costs. Platform fees, fund charges and dealing costs quietly reduce returns.
- Use tax shelters where suitable. A Stocks and Shares ISA can protect eligible investment gains and income from UK tax, subject to the rules and annual allowance.
- Keep a long horizon. A record index can fall tomorrow. Money needed in the next few years generally should not depend on volatile shares.
My view
The UK market’s comeback is a useful reminder that neglected assets do not stay neglected forever. It also shows why diversification matters. When expensive growth stocks pause, unloved banks, miners, industrial businesses and dividend payers can carry the baton.
But I would not turn that observation into an all-in bet on Britain. The FTSE 100 has benefited from a very specific mixture of commodity prices, defence spending, financial profits and global diversification. Those drivers can weaken. A balanced portfolio does not require us to predict which country or sector wins next.
Watch: more on the UK stock market
If you prefer the video version, watch the discussion below:
Frequently asked questions
Why can the FTSE 100 rise when the UK economy feels weak?
Many FTSE 100 companies earn most of their revenue overseas. Their profits are influenced by global demand, commodity prices, currencies and international markets, not only British consumer spending.
Does a record FTSE 100 level mean UK shares are expensive?
Not automatically. An index level does not measure valuation by itself. Investors still need to consider earnings, cash flow, dividends, sector concentration and the price being paid for those profits.
What is the difference between the FTSE 100 and FTSE 250?
The FTSE 100 contains the largest eligible London-listed companies and is heavily international. The FTSE 250 contains the next 250 companies and is generally more exposed to the UK economy.
Does the headline FTSE 100 return include dividends?
The commonly quoted FTSE 100 level is a price index, so it does not capture the full effect of dividends. A total-return index includes reinvested distributions and gives a broader view of investor returns.
Why has the FTSE 100 performed strongly in 2026?
Mining, defence, banking and energy shares have been important contributors. Investors have also looked beyond expensive US technology shares towards cheaper markets, dividends and cash-generative businesses.
What are the main risks of investing in a FTSE 100 tracker?
The index is concentrated in particular sectors and can be affected by commodity cycles, currencies, interest rates and geopolitics. It also provides less technology exposure than a global or US index.
Sources and further reading
- The Telegraph: Despite everything, the UK’s FTSE keeps going up
- Reuters: FTSE 100 subdued as Balfour Beatty reaches a record high, 12 August 2026
- The Guardian: FTSE 100 breaks 10,000 for the first time, 2 January 2026
- Morningstar: FTSE 100 hits 10,000 points for the first time
Disclaimer: This article is for information and education only and is not personal financial advice or a recommendation to buy or sell any investment. Investments can fall as well as rise, and you may get back less than you invest. Tax rules depend on individual circumstances and may change. If you are unsure, consider speaking to a regulated financial adviser.
