The FTSE 100, London’s benchmark stock index, has enjoyed its best 12-month period since 2009, with a remarkable uptick of more than 20% in 2025. This resurgence was fuelled by a combination of factors, including share buybacks and favourable tailwinds in key constituent sectors such as defence and mining.
The FTSE 100’s impressive performance stands in contrast to the weakening UK economic growth, pre-budget chaos, and general gloom that characterised the year. However, as a stock market index, the FTSE 100 is not a direct reflection of the nation’s economic vitality, particularly given that its members generate around three-quarters of their combined revenues overseas.
The tale of 2025 was one of helpful breezes blowing through many of the most important sectors. Defence stocks, for instance, benefited from increased spending commitments by NATO’s western European members, which assisted companies such as Rolls-Royce in their remarkable run. Banks, meanwhile, have had near-perfect conditions, with low defaults and falling interest rates, while the fallout from the car finance scandal was easily brushed off.
Global mining companies, which still make up a significant slice of the FTSE 100, enjoyed a gold-inspired rally in everything related to precious metals, as well as the demand for copper driven by the energy transition and electrification. The best-performing share in the index was Fresnillo, a Mexico-based silver miner, which rose almost fivefold.
In the pharmaceutical sector, Donald Trump’s bark on tariffs and prices proved worse than his bite, allowing AstraZeneca, the most valuable component of a value-weighted index, to rise almost 30%. Additionally, National Grid and SSE, two heavyweight players in UK energy infrastructure, benefited from regulatory funding for the upgrade of the transmission network.
Sue Noffke, the head of UK equities at the fund manager Schroders, notes that the FTSE 100’s rise should not be viewed solely as a one-year phenomenon. Over the past three years, the average investment return, including dividends, has been 14% per annum, resulting in a cumulative return of 48%.
Noffke highlights several factors behind the FTSE 100’s resurgence, including a cheap starting point, with the index priced at just under 10 times its predicted earnings for the next year, as well as corporate self-improvement and the role of share buybacks. A growing number of companies have been adopting stricter capital allocation practices in pursuit of better returns, often prompted by shareholders.
The shift towards share buybacks represents a change in thinking in London, as dividend payouts were previously a priority. Now, buybacks, which offer more value when the shares are cheap, are a greater part of the mix. Noffke calculates that 55% of larger UK companies have bought back at least 1% of their shares in the past 12 months, compared to 40% in the US.
While the old complaints about the dearth of new arrivals and the lack of whizzy US-style tech and AI stocks are still heard, investors ultimately care about valuations and returns. Noffke argues that the UK market’s appeal lies in its different sectoral mix, its relative cheapness, its cash-rich companies, and its shareholder-friendly policies, including the growing prevalence of share buybacks.
The FTSE 100’s resurgence in 2025 continues a good run, but the concentration in its makeup at the top end could work against it if a few important sectors go into reverse. Additionally, the relative lack of tech stocks may eventually become a more significant problem. Nonetheless, the “dinosaur” is not extinct yet, and the London stock market has shown its ability to adapt and thrive.
