UBS has raised its earnings growth forecast for UK equities to 16% for this year, up from a previous 11%, citing strong first-half profits.
The upgrade came in a note from Matthew Gilman, head of European equity strategy at the Swiss bank's chief investment office.
He pointed to high commodity prices at the start of the year and improving breadth across second-quarter results.
Despite the brighter earnings picture, UBS keeps its overall rating on the UK market at neutral, meaning it expects neither outsized gains nor losses.
Why the UK still lags
The bank favours regions that are either more geared to a manufacturing recovery or carry higher exposure to themes such as AI and electrification.
It argues the UK's secular growth opportunities are better captured through individual stock picks than through the index as a whole.
That view, UBS says, helps explain the narrow market leadership seen in the UK over the past 12 to 18 months.
The bank expects earnings growth to slow to around 9% in 2027, as tougher comparisons and weaker commodity prices weigh on profits.
On valuation, it describes the market as reasonable, trading on 12.7 times forecast earnings against a median since 1990 of 12.8 times.
Targets and sector picks
UBS sees the FTSE 100 reaching 11,200 by December 2026 and 11,500 by June 2027, against 10,825 in mid-August.
At sector level, the bank prefers banks, industrials, consumer discretionary and health care.
It has also upgraded European information technology back to attractive, reversing a downgrade made in early June, on improved valuations and renewed earnings momentum.
The bull and bear cases
In a more bullish case, UBS puts the FTSE 100 at 12,300 by June 2027, helped by faster global growth, higher commodity prices or a weaker pound.
Around 75% to 80% of FTSE 100 revenues are generated outside the UK, so a softer pound tends to flatter reported earnings.
In a downside case, the bank sees the index falling to 7,700, driven by risks such as prolonged energy disruption in the Middle East, renewed trade wars or sharply higher bond yields.
Commodity sectors account for roughly 20% of FTSE 100 earnings, leaving the index exposed to swings in oil, gas and metals prices.
