Since 2025 kicked off, the FTSE 100 has delivered some fairly strong returns for investors. After factoring in dividends, the UK’s flagship index has jumped 6.1%. That’s more than its 10-year average annual gain of 6%, and we’re only three months into the year.
So can the index keep up the momentum until December? And if so, how much higher could the FTSE 100 go?
FTSE 100 expected to rise
While it may not seem like it, the British economy appears to be off to a good start in 2025. According to Barclays, consumer spending across retail, hospitality, and leisure is actually rising.
In fact, sales of electronic products jumped 6.7% in February – the largest increase since May 2021. And with consumers continuing to follow popular wellness trends, Pharmacy and Health & Beauty retailers enjoyed an even more impressive 8.9% boost over the same period.
Pairing this boost in shopping activity with a fall in inflation from 3% to 2.8% paints a welcome trend of a return towards growth. That’s terrific news for UK shares in general. And should this increased spending activity continue throughout the year, the FTSE 100, along with the FTSE 250, could be primed to deliver greater returns before December comes knocking.
With that in mind, it’s not so surprising that The Economy Forecast Agency has updated its predictions that the FTSE 100 could reach as high as 9,635 points. For reference, the index is currently hovering around 8,580, implying that a further potential 12.3% gain is on the horizon. And that’s before counting the extra yield from dividends.
Of course, forecasts aren’t set in stone. This boost in consumer spending might just be a temporary surge. And if spending were to suffer from here, then the FTSE 100’s progress so far could be reversed.
Not everyone’s currently winning
Despite the strong performance of its parent index, Tesco (LSE:TSCO) is off to a rough start in 2025, falling by almost 11%. The retail giant seems to have missed out on the jump in spending when looking at the macroeconomic data. And that’s not entirely surprising, given that supermarket spending actually fell by 1.1% in February.
That’s a notable downturn from the 1% gain reported in January. Dig deeper into the data reveals that 49% of Britons now shop at budget retailers like Aldi and Lidl. Meanwhile, 67% of consumers are searching for ways to get more value from their weekly shop, and 57% are looking for deals from loyalty discount schemes.
In other words, demand for cheaper Tesco-alternative shopping destinations is going up. And while Tesco’s reporting its next set of earnings later this month, it seems investors are expecting a slowdown.
Of course, this isn’t the first time Tesco has had to navigate through a down period. And with over 23 million members (over 80% of British households) in its Clubcard programme, management has a powerful marketing tool to lure shoppers back in with new deals that consumers are seemingly craving.
Given this powerful competitive advantage and its dominant position within the retail space, this recent sell-off could potentially be a buying opportunity for long-term investors. That’s why I think this FTSE 100 stock is worthy of a closer look.
