Why FTSE 250 is tipped to thrive in 2025

The “affordability and growth potential” of the FTSE 250 index has been flagged by a City bank after it named the mid-cap benchmark among its top investment ideas for 2025.

UBS believes the FTSE 250 is “in the right place, at the right rate”,  with the potential to benefit from the UK’s targeted growth in domestic spending, infrastructure and innovation.

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And in contrast to the internationally exposed FTSE 100, the status of the FTSE 250 as Europe’s most domestically aligned major index offers a degree of insulation from currency and trade risks in the wake of Donald Trump’s election.

UBS said: “If US trade policies tighten or the dollar strengthens, the FTSE 250’s local orientation stands as a more stable and resilient alternative to more internationally exposed names.”

It adds that the FTSE 250’s high-quality stocks trade at a discount to their peers in the FTSE 100, meaning there’s exposure to high quality and domestic growth at more reasonable prices.

This undervaluation is likely to reflect lingering caution on UK assets following Brexit, presenting upside potential as sentiment continues to improve.

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Underpinning its support for the FTSE 250, the bank believes that the UK economy presents a selective yet compelling growth opportunity.

The bank’s economists project UK GDP growth at 1.5%, modestly outpacing the eurozone at 0.9%, but trailing the US at 1.9%. However, the bank said that investors should pay close attention to the composition of this growth.

It said: “Small and mid-cap stocks, closely tied to domestic demand, are more responsive to shifts in the UK economy, and this targeted expansion can have an outsized impact on the FTSE 250.

“Even modest GDP growth can drive meaningful returns in these companies, especially when supported by government policies. For those looking to ‘bet on Britain’ amid a complex global backdrop, the FTSE 250 offers a unique blend of resilience and growth potential.”

The UK government has earmarked over £100 billion, the equivalent to 3.7% of GDP, for capital projects across infrastructure, healthcare, energy and homebuilding over the next five years.

This multi-year commitment is set to drive demand across sectors such as construction, consumer services and industrials, creating a supportive environment for small and mid-cap growth.

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Combined with the Bank of England’s anticipated rate cuts to 3.25% by the end of 2025, UBS believes these policies have the potential to foster an environment ripe for reinvestment and expansion at lower financing costs.

The FTSE 250 is up by more than 4% this year, having traded in a narrow range since May. It remains 15% below the record of more than 24,000 set in 2021, whereas many leading global benchmarks have recorded all-time highs this year.

FTSE 250-listed companies with valuations between £1 billion and £4 billion include the outsourcer Serco Group (LSE:SRP), housebuilder Bellway (LSE:BWY), IT business Softcat (LSE:SCT), car distributor Inchcape (LSE:INCH) and oil and gas firm Harbour Energy (LSE:HBR).

UBS, which makes no recommendations on individual stocks, adds: “In a market where high valuations are increasingly common, the FTSE 250’s combination of affordability and growth potential makes it particularly attractive.”