London, Friday 5 December 2025 – pre‑open
UK equities head into the final trading day of the week with the FTSE 100 hovering just below record territory, but sentiment is split between weak domestic data, growing expectations of Bank of England rate cuts, and a heavy US data calendar later today.
Here’s what traders need to know before the London Stock Exchange opens.
1. Where the FTSE 100 stands after Thursday’s close
The FTSE 100 finished Thursday around 9,711 points, up roughly 0.2%, while the more domestically focused FTSE 250 gained about 0.3%, extending a cautious grind higher that has characterised the start of December. TechStock²
Gains were led by industrials, defence and financials, offset by weakness in defensives and some consumer names: [1]
- Aerospace & defence shares climbed for a third session, with Rolls‑Royce and BAE Systems up around 2–3%, supported by ongoing geopolitical tensions and stalled Russia‑Ukraine peace efforts.
- 3i Group jumped more than 5%, topping the FTSE 100 after a strong update, while investment banks and brokerages rose over 2%.
- Burberry advanced roughly 3% after HSBC raised its price target, helping push personal goods stocks nearly 3% higher.
- On the downside, Diageo fell almost 4% after a downgrade and target cut from UBS, dragging the beverages sector nearly 3% lower.
- Large pharma names, including AstraZeneca, slipped close to 1%.
- Investment platform AJ Bell dropped around 7% after warning that new Individual Savings Account (ISA) rules linked to the Autumn Budget would add complexity and costs, overshadowing otherwise solid results.
Despite the index’s strength, UK equity funds are still seeing outflows. Calastone data cited by Reuters indicate investors withdrew about £3 billion from UK stocks in November, the sixth straight month of net selling – a key backdrop for any move at today’s open. [2]
2. UK macro picture: construction slump and rising job worries
The relatively calm index move on Thursday masked some of the weakest UK construction data since the pandemic.
- The S&P Global / CIPS construction PMI fell to 39.4 in November from 44.1 in October, the lowest since May 2020 and well below the 50 line that separates expansion from contraction. [3]
- Residential activity was the weakest since the first COVID lockdowns, while commercial and civil engineering work saw the sharpest declines in more than five years.
- The survey showed job‑shedding at the fastest pace since August 2020, with business optimism dropping to a near three‑year low. [4]
Broader business surveys paint a similar picture: UK firms have been cutting jobs at the fastest rate since 2021, while builders report a steep downturn ahead of and after Chancellor Rachel Reeves’ Autumn Budget on 26 November, which included about £26 billion in tax increases. [5]
Taken together, the data:
- Underscore downside risks to UK growth heading into 2026.
- Strengthen the argument for faster and deeper interest‑rate cuts from the Bank of England, particularly if weakness spreads further into services and consumer spending.
These macro concerns remain front of mind for traders setting up positions before the open, especially in housebuilders, REITs, construction names and domestically focused mid‑caps.
3. Bank of England: December cut expectations front and centre
Bank Rate currently stands at 4%, after a series of reductions since August 2024. The Bank of England’s own explainer, last updated in early November, stresses that inflation is above the 2% target but has clearly fallen, and that “further, gradual cuts” are likely if the disinflation trend holds. [6]
Market and economist expectations have converged on a cut at the 18 December 2025 Monetary Policy Committee (MPC) meeting:
- A Reuters poll of economists in mid‑November found nearly 80% expect a 25‑basis‑point cut to 3.75% this month, with a follow‑up move to 3.5% in Q1 2026. [7]
- Goldman Sachs Research likewise expects a December cut followed by three more reductions in the first half of 2026, which would take Bank Rate down to around 3% by summer 2026. [8]
Goldman’s baseline:
- UK GDP growth of roughly 1.1% next year,
- Inflation easing towards 3.4% in 2025 and 2.3% in 2026, and
- 10‑year gilt yields drifting towards 4% by end‑2026, from around 4.4–4.5% in late November. [9]
For equities, the implications are crucial:
- A credible rate‑cut cycle supports the case for mid‑caps, real estate, utilities and other rate‑sensitive sectors, even as near‑term data signal economic pain. TechStock²
- Conversely, if inflation proves stickier than expected, the BoE could disappoint markets on the pace of cuts, risking renewed volatility in domestic stocks and sterling.
Today’s session is therefore also about positioning ahead of that December 18 decision.
4. Global backdrop: Fed pivot hopes and a heavy US data slate
Fed rate‑cut bets dominate
Globally, risk assets are being steered by the Federal Reserve as much as by the BoE.
Overnight and earlier this week:
- US indices ended near flat, but Fed‑cut optimism remained intact, with markets pricing about an 87% chance of a 25‑basis‑point Fed cut this month, according to CME’s FedWatch tool cited by The Business Times. [10]
- A Reuters global markets wrap noted 10‑year US Treasury yields around 4.1% and a softer dollar, including sizeable gains in the yen and sterling, as traders bet on easier US policy and speculated about a potential Bank of Japan rate hike. [11]
This combination – lower yields, weaker dollar, and a Fed pivot narrative – has helped fuel the rally in global equities, even as some macro data turn softer.
US labour market: layoffs vs jobless claims
US labour headlines are mixed:
- Data from Challenger, Gray & Christmas show 1.17 million US job cuts announced so far in 2025, the highest since the pandemic year of 2020 and only the sixth time since 1993 that the tally has topped 1.1 million. [12]
- The bulk of cuts came earlier in the year, but November still saw more than 70,000 layoffs, with telecoms and tech among the hardest‑hit sectors. [13]
At the same time, weekly jobless claims have recently surprised on the downside, muddying the picture but reinforcing the idea of a gradual cooling, not a collapse, in the US labour market. [14]
For UK investors, this matters because it anchors expectations for the Fed, which in turn influence global yields, the dollar, and risk appetite – all key drivers for the FTSE 100’s heavyweight multinationals.
Today’s US and global data: Core PCE takes the spotlight
Friday’s economic calendar is dense, with US inflation and spending data in focus:
- The Core PCE Price Index – the Fed’s preferred inflation gauge – is expected to rise 0.2% month‑on‑month and 2.9% year‑on‑year, with the broader PCE index seen at 0.3% m/m and 2.8% y/y.
- Personal income and spending, factory orders and University of Michigan consumer sentiment and inflation expectations are also due later in the US day. [15]
Importantly, November’s non‑farm payrolls report is not being released today. A revised schedule from the US Bureau of Labor Statistics shows the jobs report has been postponed to 16 December, after earlier being pencilled in for 5 December. [16]
In Europe, Friday’s releases include:
- Germany factory orders (October),
- Eurozone Q3 GDP and employment final readings, and
- Various industrial output and trade updates from France and others – all due around the time European markets open. [17]
While much of this data lands after the UK open, futures and pre‑market positioning will be shaped by expectations, especially around US core PCE.
5. Stock and sector stories to watch at the London open
Balfour Beatty: bright spot in a gloomy construction sector
Despite the dismal construction PMI, Balfour Beatty offered a rare positive surprise:
- The group said its order book should grow by around 20% in 2025, underpinned by more than £3.5 billion of new power‑generation orders.
- It expects underlying operating profit to exceed last year’s £252 million, as solid UK construction and support‑services performance offsets weakness in its US business. [18]
- Shares hit a record high around 726.5p on Thursday, helped by expectations of a multi‑year UK power‑grid and infrastructure upgrade linked to low‑carbon goals and higher public investment. [19]
The stock has become a bellwether for energy‑transition and infrastructure spending – themes many asset managers, including BlackRock, see as long‑term drivers for UK and European markets. [20]
Defence, luxury and retailers
- Rolls‑Royce and BAE Systems remain in focus after a strong run, supported by defence spending and geopolitical risk; the sector has logged several consecutive daily gains. [21]
- Burberry may see follow‑through interest after Thursday’s bounce on a broker upgrade, with investors watching for any additional calls from the sell‑side as valuations are reassessed. [22]
- Frasers Group and UK supermarkets such as Sainsbury and Tesco are sensitive to signs of weakening consumer demand; stake changes in Sainsbury and broader retail pressure have kept the sector under scrutiny this week. [23]
Financials, platforms and LSEG
- Major banks have been volatile but are starting to benefit from falling bond yields and the prospect of rate cuts, with recent sessions seeing a rebound in names such as Barclays. TechStock²
- AJ Bell could remain under pressure after its warning on higher compliance and systems costs tied to ISA reforms, despite ongoing share buybacks and record client numbers. [24]
- London Stock Exchange Group (LSEG) stays on watch as investors digest its expanding cloud and AI partnerships, including with Microsoft and OpenAI. Analysts see scope for mid‑single‑digit revenue growth and improving margins over the next two years. [25]
6. FTSE index shake‑up: British Land in, WPP out
Another important theme for December – and one that can move stocks around the open – is the FTSE UK Index Series December 2025 review:
- British Land will be promoted to the FTSE 100.
- Advertising giant WPP will be relegated from the FTSE 100 to the FTSE 250.
- Several new names, including Shawbrook Group, Princes Group and RTW Biotech Opportunities, will join the FTSE 250. TechStock²
These changes become effective on 22 December 2025, but trading around them often starts weeks in advance, as passive funds and benchmark‑constrained investors adjust holdings.
O’Dwyer’s PR News notes that WPP’s removal follows a rough year for the shares, which have lost about two‑thirds of their value in 2025 amid profit warnings and governance concerns. [26]
For this morning’s open, traders will be watching index heavyweights and new entrants for:
- Increased volumes and block trades,
- Any price dislocations relative to fundamentals, and
- Signs of rotation between large‑cap multinationals and mid‑caps.
7. Flows, valuations and the 2026 narrative
Despite the latest rally, UK stocks remain under‑owned and relatively cheap, especially away from the mega‑caps:
- Strategists at Citi and others project around 12% earnings per share (EPS) growth in 2026 after a largely flat 2025, with contributions from all major sectors. TechStock²
- Goldman Sachs points out that domestic UK stocks have underperformed the FTSE 100 by about 11% since July, leaving mid‑caps offering roughly 100 basis points more dividend yield than the blue‑chip index. [27]
- Morningstar and City A.M. commentary highlighted in recent analysis argue that years of outflows have left UK small caps trading at unusually depressed valuations, despite renewed interest from private‑equity buyers and an uptick in buyback programmes. TechStock²
BlackRock, meanwhile, continues to focus on:
- AI‑related plays,
- Energy and infrastructure, and
- Electrification and data‑centre demand,
areas where the UK market has a strong presence in utilities, grid equipment and specialist engineering. TechStock²+1
For investors looking beyond today’s open, the combination of rate‑cut expectations, subdued valuations and improving 2026 earnings forecasts forms the core of the medium‑term UK bull case – even if near‑term macro data remain noisy.
8. Key things to watch today, before and after the UK opens
Going into the 5 December 2025 session, markets will be watching:
Before and around the London open
- Overnight moves in Asia and early European futures, especially in response to:
- Japan’s leading and coincident indicators,
- Germany factory orders and French industrial data, and
- Any fresh headlines on the Fed or BoJ. [28]
- Residual reaction to Thursday’s UK construction PMI shock and to Balfour Beatty’s upbeat guidance, particularly across construction, infrastructure and utilities. [29]
- Ongoing index‑review positioning, with British Land, WPP and related FTSE 250 entrants especially sensitive to flows. TechStock²+1
Later in the session
- US Core PCE, PCE, personal income and spending data, which could either reinforce or challenge expectations of a Fed cut this month. [30]
- Eurozone Q3 GDP / employment final figures and Germany factory orders, for clues on continental demand – important for FTSE 100 exporters. [31]
- Any BoE communications or leaks ahead of the 18 December meeting that might shift the perceived odds or scale of rate cuts. [32]
Final word
The setup before the UK market opens on Friday 5 December 2025 is one of cautious optimism:
- The FTSE 100 is edging higher, supported by defence, industrials and selective consumer names.
- Domestic data are worsening, especially in construction and employment, but this is precisely what strengthens the case for BoE rate cuts.
- Globally, Fed pivot hopes and a softer dollar continue to underpin risk assets, with core US PCE now the key data point for markets today.
For traders and investors, the challenge at the open will be balancing short‑term macro anxiety against a medium‑term story of improving earnings, lower rates and still‑undemanding UK valuations.
This article is for information purposes only and does not constitute personal investment advice.
References
1. www.reuters.com, 2. www.reuters.com, 3. www.reuters.com, 4. www.reuters.com, 5. www.reuters.com, 6. www.bankofengland.co.uk, 7. www.reuters.com, 8. www.goldmansachs.com, 9. www.goldmansachs.com, 10. www.businesstimes.com.sg, 11. www.reuters.com, 12. www.businessinsider.com, 13. www.businessinsider.com, 14. www.reuters.com, 15. www.investing.com, 16. www.dtcc.com, 17. www.actionforex.com, 18. www.reuters.com, 19. www.reuters.com, 20. www.goldmansachs.com, 21. www.reuters.com, 22. www.reuters.com, 23. kalkinemedia.com, 24. www.reuters.com, 25. www.reuters.com, 26. www.odwyerpr.com, 27. www.goldmansachs.com, 28. www.actionforex.com, 29. www.reuters.com, 30. www.investing.com, 31. www.actionforex.com, 32. www.bankofengland.co.uk
