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This week's headlines
- UK: interest rate cut – in its first move since August, the Bank of England cut the base rate from 4% to 3.75% this week, its lowest level since 2022.
- UK: unemployment on the rise – unemployment rose unexpectedly to 5.1% in the three months to October, its highest rate since 2021.
- UK: inflation slows – annual inflation fell to 3.2% in November, an eight-month low. Food and non-alcoholic drinks led the decline, alongside easing costs in alcohol, tobacco and transport.
- US: unemployment edges up – unemployment increased to 4.6% in November, a rise on the 4.4% reported in September. Labour force participation remained stable, suggesting a gradual slowdown.
- Japan: interest rate rise – The Bank of Japan raised short-term interest rates from 0.50% to 0.75%, in line with expectations. This marks the second hike this year and takes rates to their highest level since 1995.
What this means for financial advisers and clients
In the UK, rising unemployment and falling inflation helped pave the way for the widely expected interest rate cut. However, the vote breakdown within the rate-setting Monetary Policy Committee (MPC) was less dovish than some investors had predicted. Four of the nine committee members voted to keep rates on hold, reflecting continued concerns over factors such as persistent wage inflation.
While the rate cutting cycle likely has further to go, some investors have now paired back expectations on the speed and extent of such moves. This remains an area to watch as we move into 2026.
Chart of the week - the Dollar to keep sliding?
Source: Bloomberg. Forecast change versus spot levels as of 11th December
Why this matters
After sliding heavily against most global counterparts during the first half of 2025, many banks are predicting that the US dollar will continue weakening through 2026.
Bets on a continued decline centre around the Federal Reserve cutting interest rates at a relatively fast pace into next year, while actions from other central banks are expected to move more cautiously. This would lead to US debt becoming less competitive, potentially driving outflows into other countries.
A softer dollar also reshapes trade dynamics. Imports become more expensive for US businesses, while exporters gain a competitive edge.
In this scenario, UK investors holding US assets denominated in GBP (or other currencies) could be hit as dollar returns would fall when converted back into Sterling. On the other hand, likely winners would be emerging economies whose debt - often denominated in dollars - would become easier to finance. Emerging markets could also benefit from increased capital flows as investors seek higher interest rates outside the US.
The Markets
UK markets push higher
UK markets rose, despite a tight interest rate decision tempering the rally. Sectors such as mining, banking, and defence outperformed, although the oil and gas sector struggled.
US struggles on tech and oil pressure
The US fell following mixed economic data. It also suffered from weakness in mega-tech names such as Broadcom and Oracle, combined with continued pressure in the oil and gas sector as crude prices fell.
Weaker expectations hurt Emerging Markets
Emerging Market tech and AI stocks slid, correcting some speculative rises earlier in the year. Markets also suffered from falling expectations of US interest rate cuts in the short-term after jobs data came in stronger than predicted.
Oil falls on expected supply increases
Oil prices fell this week as the Organisation of the Petroleum Exporting Countries (OPEC) unwound production cuts and optimism over peace in Ukraine raised the likelihood of Russian oil sanctions being removed. In contrast, gold saw a small increase, supported by rising geopolitical tensions in countries such as Venezuela.
| | Weekly Change | YtD Change |
|---|---|---|
| FTSE 100 | 1.96% | 24.56% |
| FTSE 250 | 2.08% | 12.23% |
| S&P 500 | -1.05% | 8.65% |
| NASDAQ | -0.99% | 12.12% |
| FTSE Developed Europe Ex-UK | 0.49% | 25.77% |
| FTSE Emerging Markets | -2.23% | 15.06% |
| FTSE Japan | -2.14% | 16.11% |
| Brent Crude | -2.47% | -20.20% |
| Gold Spot | 0.69% | 64.82% |
| UK 10yr Gilt yield | +1bp | -12bps |
| US 10yr Treasury yield | -2bps | -43bps |
Source: FE FundInfo, goldprice.org, exchangerates.org.uk, investing.com and finance.yahoo.com. GBP returns as at close of business on Thursday 18th December 2025.
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This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.
