FTSE 100 forecast: UK stock index on the verge of new records

• FTSE 100 forecast boosted by bullish sentiment across global stock markets
• US inflation comes in cooler, boosting sooner Fed rate-cut prospects
• UK Spending Review welcomed by investors

Weaker US inflation provides fresh boost to sentiment supported by US-China talks

Risk appetite remained firm after the release of weaker-than-expected US inflation data, which boosted speculation that the Federal Reserve will cut interest rates sooner than expected – possibly in September instead of October – and potentially twice before the year is out. However, the optimism was limited as some feared the tariff-induced inflation was likely to show up in the coming months, which may limit the easing potential. But this was offset by optimism that tariffs may be reduced if the US and China agree on a deal, which, according to Trump, was done, subject to approval from him and China President Xi Jinping. The two side have established a framework to revive the flow of sensitive goods, though confusion remained over the details after Trump posted on social media that the US is “getting a total of 55% tariffs, China is getting 10%.” Meanwhile, the FTSE 100 forecast remains positive amid all this. In addition to these global events, the UK’s weaker jobs market data this week has lifted the probability of a Bank of England rate cut, while there was not major reaction to Chancellor Rachel Reeves’ Spending Review.

FTSE 100 forecast: UK Spending Review welcomed by investors

Rachel Reeves has delivered her Spending Review today, and markets were overall pleased with the UK Chancellor’s budgets for government departments. It looks like more spending was promised than expected, prompting Conservative MP Mel Stride to criticise the strategy as a “spend now, tax later” approach.

Reeves has pledged a significant increase in public sector investment while firmly distancing her approach from previous austerity measures. Central to the plan is a 3% annual real-terms increase in NHS funding—surpassing expectations—alongside £39 billion committed to social and affordable housing. Defence spending will also see a boost, and the £3 bus fare cap in England is being extended through to 2027. Additionally, Reeves has set a target to end the use of expensive asylum hotels by 2029.

Judging by pricing action on both the FTSE 100 and 250 indices, the market appears to be pleased with the Spending Review.

US inflation undershoots, boosting stocks

The FTSE 100 and US indices found fresh, albeit mild, support following a weaker-than-expected US CPI report. Headline and core inflation both rose just 0.1% month-on-month, missing forecasts of 0.2% and 0.3%, respectively. The data sparked a broad sell-off in the US dollar, while lifting index futures. But the FX moves shortly unwound while equities held their gains.

The FTSE 100 had already found support earlier this week after UK labour data disappointed expectations, raising the prospects of a sooner-than-expected rate cut by the BoE. Average earnings slowed to 5.3% (3m/y), down from 5.6%, while jobless claims unexpectedly jumped by 33.1K. These figures have increased market expectations for a rate cut in August, with a second potentially in November.

Technical FTSE 100 forecast: new highs incoming?

Source: TradingView.com

A quick peak at the charts of the major indices suggests the global macro trend is still quite bullish. And it is no different for the UK markets. Indeed, the FTSE 100 forecast is positive, buoyed by optimism that the US and China will hopefully reach an agreement. This optimism is helping keep the FTSE in an overall bullish trend, after the index ended a tight consolidation by breaking higher.

Given the higher highs, higher lows and now the break out from the consolidation pattern, the FTSE 100 is poised to break its March 2025 high of 8,910. That’s the next key target for the bulls. Beyond that, the psychologically important 9,000 level will come into view.

In terms of support levels to watch, 8,850 is now the first line of defence for the bulls, followed by the 8,800 level.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R