For Traders from Club iNSIDER: FTSE100 Outlook to 2025. Can the UK Catch Up on Growth?

FTSE 100: 7% EPS Growth Requires Stronger Margins on Weak Sales

The consensus of 7% EPS (earnings per share) growth for UK stocks in 2025 could be at risk without stronger revenue growth, as it relies too heavily on margin improvement, particularly in the materials and healthcare sectors. Banks could be a bright spot if slower rate cuts from the Bank of England (BOE) support net interest income amid recession risks, while a recovery in cyclical demand remains key for metals and mining companies.

1. 7% EPS growth at risk on just 1% revenue growth

The FTSE 100’s consensus EPS growth of 6.9% for 2025 is expected to lag the broader European market at 8.4%. Even that looks risky, however, as revenue recovery is the lowest among peers at just 1.4%.
The materials, pharmaceuticals and banking sectors are the biggest contributors to earnings growth, with AstraZeneca, Glencore and Barclays accounting for 30% of the total. However, materials revenue is expected to remain flat in 2025, meaning the sector’s 18% EPS growth relies entirely on margin improvement. The EPS outlook for the energy sector also remains mixed, as energy price forecasts point to a decline next year.

Within the consumer staples sector (18% of the index weight), a stronger recovery in volumes will be key to achieving 6% EPS growth, as analysts expect only low-single-digit revenue growth across segments and a collapse in margins in food, beverages and tobacco.

2. Margin expansion critical as energy and banks slump

With the FTSE 100’s revenue growth forecast to be weak at 1.4% next year, EPS growth forecasts will increasingly rely on operating leverage. Margin improvements in the materials, healthcare and industrials sectors are expected to push the index’s margin to 16.4% by 2025. vs. 16.1% in 2024, with energy and banks remaining the main drags on the back of deteriorating oil price and refining margins, as well as lower net interest income.

All aerospace and defence companies are positioned to grow both revenue and operating margins, with 8-9% revenue growth at Rolls Royce and BAE and 30 basis point margin expansion driving 12% EPS growth in the industrial sector. The reduction in UK banks’ pre-tax margins of more than 230 basis points vs. 2024 looks aggressive, with analysts’ estimates of 28% loan loss provision growth perhaps overly cautious compared to 13% at European banks.

3. UK banks’ earnings growth relies on BOE rate cuts

UK banks’ earnings could benefit from slower rate cuts from the Bank of England than the European Central Bank (ECB) in 2025, due to the higher risk of recession in the country, which could support longer-term net interest income compared to their European counterparts. Economic forecasts for UK consumer price index (CPI) growth in 2025 at 2.4% compared to 2% in the eurozone point to more persistent inflation in the UK.

The government’s new budget plans – including increased public spending, higher employer National Insurance contributions and a minimum wage – could also contribute to the risk of recession, with UK wage growth already above 6.5% in October. The money market is now pricing in five to six rate cuts from the ECB by the end of 2025, compared to just two or three from the BOE.

UK banks’ EPS and earnings forecasts over the past 10 years have closely tracked 10-year UK government bonds, with a correlation of 92% and 93% respectively.

4. Materials sector earnings recovery hinges on metals outlook

The UK materials sector – mainly metals and mining companies – needs stable prices and volume growth to support its earnings recovery in 2025. The outlook for metals prices remains mixed for 2025, with analysts predicting mid-single-digit growth for copper and aluminium, while nickel and zinc remain stable.

However, sector EPS forecasts for 2025 were raised by 3% in the last month, led by Rio Tinto and Glencore. While the cyclical recovery, particularly in China, is critical to boosting final demand in the near term, higher government spending on infrastructure and a green transition to renewable energy could help support commodity prices in the medium to long term.

UK materials EPS forecasts closely track the BCOMIN index – a composite of base metals futures contracts – with a correlation of 87% over the past 10 years.

5. The 2025 revisions show that the energy sector and materials are reaching a turning point