2024 was a fantastic year for FTSE100. The UK’s flagship index is up 6% since the start of the year, but after including dividends that return rises to 9.4%. And if we go back a little further, at the beginning of November 2023, investors collected closer to 23.5%! For reference, historically the index has typically only generated a total annual return of around 8%.

But now that the FTSE 100 index has climbed so much, is there still room for growth? Or is the UK stock market on track for a cooling period with falling prices? Here’s what the experts say.

Forecasts are optimistic

Despite the strong momentum observed so far, analyst projections seem rather optimistic for the next 12 months. According to the latest price forecasts from the Economic Forecast Agency, the most optimistic forecast for the FTSE 100 over the next 12 months is 9,888 points, with the most pessimistic being 8,594 points.

In terms of yield, this represents a potential capital gain of between 5% and 21% compared to current prices. And don’t forget the additional 3.6% expected from dividends based on the current yield.

Looking at the projections table, some weakness is expected over the next three months. This is not entirely surprising. Some recovery in returns should be expected after exceptional performance. However, there is also the calendar effect to take into account, where investment fund managers close positions to harvest tax losses towards the end of the year.

But beyond this point, the FTSE 100 index appears poised to continue its upward trajectory. There are many growth catalysts at work, but arguably two of the most influential are the continued decline in interest rates and the expected rise in interest rates. GDP growth following the new government budget.

Take a step back

It is essential to remember that forecasts are inherently wrong. They rely on many assumptions that often do not come true, making them quite crude instruments rather than precise measuring tools. So investors could end up earning less than expected by this time next year.

It’s also important to remember that while the FTSE 100 index is expected to rise, it may not be the same for all its constituents. Looking Rolls-Royce (LSE: RR.), the engineering titan has also delivered some terrific performances in recent times. But forecasts are becoming more and more conservative.

With its upward momentum largely due to the recovery of the travel market, the growth of its Civil Aerospace division could see a major slowdown. Indeed, airlines have already started reporting a weaker pricing environment.

Since much of the company’s revenue comes from engine maintenance, fewer flight hours mean lower demand for its services. To be fair, the group’s other segments are performing admirably, with Power Systems poised for potentially explosive growth with its modular nuclear reactor technology by 2030.

However, until it becomes a more significant contributor to revenue, the company remains very sensitive to air travel. So even if the FTSE 100 index rises, there is no guarantee that Rolls-Royce will follow.