Market snapshot: reports of death of UK markets greatly exaggerated
At the tail end of 2025, head of markets Richard Hunter examines the UK as a viable alternative for investors rotating out of the tech trade, with inflation falling, and an interest rate cut likely tomorrow. He also assesses developments overseas.
17th December 2025 08:39
by Richard Hunter from interactive investor
The release of delayed economic data seemed to vindicate the Federal Reserve’s decision to cut interest rates last week, although given the quality of the somewhat stale data, the noise did little to move the dial.
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The non-farm payrolls report showed an increase of 64,000 jobs in the month, higher than the expected 50,000, but that 105,000 jobs had been lost in October. At the same time, the unemployment rate rose to 4.6% from 4.4% in September. Whatever the veracity of the numbers, the trend clearly points towards further monetary easing from the Fed next year, although there is little expectation for this to begin in January.
With a reasonable retail sales number in tow, investors will now switch their attention to the latest inflation report tomorrow, where a 3.1% increase for November forms the consensus view. Taken together, the numbers will likely perpetuate the Fed’s current “wait and see” strategy, with an additional complication potentially arising later next year as a new and potentially more dovish chair takes his seat.
Elsewhere, the oil price endured a day of swings which inevitably impacted energy shares. Initial falls followed the potential easing of geopolitical tensions between Russia and Ukraine, but some of those losses were reversed after President Donald Trump ordered a blockade of oil tankers into Venezuela. Even so, the possibility of a supply glut alongside weak demand has resulted in a decline of 20% for the oil price this year.
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The rotation trade away from artificial intelligence (AI) stocks continued but at a lower pace, enabling the Nasdaq to notch a marginal gain in the trading session. The main indices are heading towards the end of the year in remarkably good shape given the challenges of the last months, with gains on the table of 13.1%, 15.6% and 19.7% for the Dow Jones, S&P 500 and Nasdaq respectively.
In the UK, some comforting news came in the form of the latest inflation reading, which fell to 3.2% in the year to November compared to 3.6% the previous month. While the level remains above the Bank of England’s 2% target, the lower direction of travel may well now be close to becoming established. Taken together with a higher unemployment figure yesterday, there seems no doubt that an interest rate cut will follow tomorrow.
Of equal interest will be whether the Bank of England chooses a more aggressive approach with a larger cut than the 0.25% expected – which is unlikely – and in any event whether the central bank provides any guidance on the scale and timing of any further reductions next year.
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In opening exchanges, Bunzl (LSE:BNZL) fell after a trading statement which revealed that revenues are expected to be broadly flat at actual exchange rates, although the group reiterated its full-year guidance. Its sharp decline did little to derail a strong open for the premier index, underpinned by strength in the oil majors given the price rebound, a broker upgrade which lifted HSBC Holdings (LSE:HSBA) and Standard Chartered (LSE:STAN) as a read across and further recovery in the housebuilders in anticipation of an interest rate cut.
More broadly, reports of the UK markets’ death have been greatly exaggerated. The FTSE 100 has spiked by 19.6% in the year to date (and the FTSE 250 by 7.6% despite any domestic travails) in a rise which has been propelled by some spectacular gains in three of its largest sectors, namely mining, the banks and defence. The performance of those sectors has been strong and constant this year, providing a viable alternative to global investors rotating out of the technology trade.
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