UK stocks are set to rise, driven by falling interest rates benefiting mid-cap stocks like housebuilders. The FTSE 100 hit record highs in 2025, with the Morningstar UK Index also reaching new peaks. Investment trust managers predict FTSE 100 could surpass 10,000 points in 2026. Job Curtis has increased UK exposure in his trust, City of London.

Managers believe mid-cap stocks in the FTSE 250 will lead market growth in 2026, with potential for higher returns than large-cap stocks. Lower interest rates could boost mid-caps’ earnings growth. Small and mid-caps offer attractive valuations, presenting a reversion opportunity for UK equities.

UK earnings season is crucial for market sentiment, with realistic company guidance key to limiting negative market swings. Even meeting earnings expectations could drive returns for small and mid-cap companies. Expectations for strong earnings growth in the UK market are high for the upcoming year.

Valuations in the property sector may rise with expected interest rate cuts in 2026, benefiting companies like Persimmon and Taylor Wimpey. Inflation is expected to fall, leading to further base rate cuts by the Bank of England. Some fund houses are cautious on UK economic growth, with growth forecasts lowered for 2026.

Not all fund houses share the optimism for UK stocks, with concerns over subdued economic growth in 2026. Bank of America forecasts growth between 1.2% and 1.4%, with inflation nearing 2%. European asset managers expect slow growth in the UK, with political risks highlighted as a concern for market stability in 2026.

Read more at Morningstar: What’s the Outlook for UK Stock Markets in 2026?