The first week of December was a choppy one for the UK stock market. The FTSE 100 hovered close to record highs but ultimately finished lower, dragged by oil majors, a bruising week for WPP and mixed economic data. At the same time, traders leaned into a growing narrative of interest‑rate cuts in 2025–26, keeping risk appetite alive despite warnings from the Bank of England about “stretched” equity valuations. [1]
Below is a detailed breakdown of how the FTSE 100, FTSE 250 and key sectors performed between 1 and 6 December 2025, plus the main forecasts and analyst views shaping the outlook for UK shares.
UK stock market overview: indices end the week in the red
By the close on Friday 5 December:
- FTSE 100 ended around 9,667, down roughly 0.6% for the week, leaving the index just shy of its recent all‑time highs but clearly losing momentum. [2]
- FTSE 250 underperformed slightly, falling about 0.5% over the same period.
- The more growth‑sensitive AIM All‑Share slipped around 0.3% week‑on‑week. [3]
The week began with cautious selling on Monday as new data showed UK manufacturing barely back in expansion, and ended with a sharper drop on Friday despite benign US inflation data. [4]
At the same time, the UK remained one of 2025’s relative bright spots in global equities. Analyses from outlets like Finimize and The Motley Fool note that, year‑to‑date, UK shares have actually outperformed the S&P 500, helped by stronger earnings growth and a sector mix tilted toward energy, banks and “old economy” value stocks. [5]
Macro backdrop: PMIs, the Autumn Budget hangover and central‑bank signals
1. UK data – fragile growth, pockets of resilience
- Manufacturing PMI
On Monday, S&P Global’s UK manufacturing PMI ticked up to 50.2 in November, its first reading above the 50 “no‑change” line in 14 months. But survey compiler Rob Dobson stressed that the improvement was “encouraging but still worryingly weak”, with factory‑gate prices falling for the first time in over two years – a sign of intense competitive pressure. [6] - Construction PMI
Later in the week, UK construction data underlined the patchy nature of the recovery, with activity dropping back into contraction and hitting its weakest level since the pandemic‑era slump in 2020. That reinforced fears that higher rates and fiscal tightening are biting into investment. [7] - Housing and autos
Nationwide data showed annual house‑price growth slowing to about 1.8%, with buyers still constrained by mortgage rates that remain more than double pre‑Covid levels, even after this year’s rate cuts. [8]
Meanwhile, the SMMT reported a small fall in new car registrations in November, even as the share of pure electric vehicles continued to edge higher. [9]
Taken together, the data painted a picture of sluggish but not collapsing UK demand – just weak enough to boost hopes of more rate relief, but not strong enough to power a decisive earnings upgrade.
2. Bank of England – easier on banks, tougher on froth
The Bank of England’s Financial Policy Committee (FPC) was a major talking point on Tuesday:
- The FPC said UK banks had passed the 2025 stress tests comfortably and announced plans to lower system‑wide capital requirements by one percentage point to 13% of risk‑weighted assets. The move is designed to give lenders more confidence to use their capital to support households and businesses. [10]
- In the same Financial Stability Report, the Bank warned that valuations in riskier assets – especially AI‑focused tech stocks – are “materially stretched” and vulnerable to a sharp correction, both in the US and the UK. [11]
That combination – a friendlier stance toward lending but a blunt warning on equity froth – shaped sentiment across banks, tech‑linked names and growth stocks throughout the week.
3. Global backdrop – Fed pivot and falling bond yields
On the global front, markets remained fixated on US data:
- A closely‑watched US core PCE inflation print came in broadly as expected, underpinning bets that the Federal Reserve could cut rates as soon as this month. [12]
- Saxo’s Market Quick Take and Weekly Market Compass series highlighted a mix of softening US macro numbers, lower Treasury yields and still‑buoyant risk appetite, which together have pushed global equities to re‑rate sharply in the past quarter. [13]
For the FTSE 100 – with its heavy exposure to global banks, energy, miners and defensives – falling yields and a softer dollar were broadly supportive. But the BoE’s warnings about AI valuations kept a lid on some of the more speculative corners of the market.
Day‑by‑day: how UK shares traded from Monday to Friday
Monday 1 December – cautious start to the month
The week opened on a negative note:
- FTSE 100 fell 0.2% to 9,702.53.
- FTSE 250 dropped a sharper 0.7% to just over 22,020. [14]
Key drivers:
- The better‑than‑forecast UK manufacturing PMI wasn’t enough to offset worries that growth remained fragile. Investors were wary of the first Autumn Budget from Chancellor Rachel Reeves, which independent outlets such as Attivo and interactive investor have described as fiscally tight and focused on shoring up credibility after years of instability. [15]
- Harbour Energy, the UK’s largest oil and gas producer, announced plans to cut around 100 North Sea jobs, flagging an “uncompetitive tax regime” and the continued drag from the extended windfall tax – a reminder that policy risk remains high in the UK energy sector. [16]
Overall mood: risk‑off, with investors trimming cyclical mid‑caps and domestically‑exposed names.
Tuesday 2 December – banks rally as BoE eases rules, but FTSE barely budges
On Tuesday the index had plenty of news but little net movement:
- FTSE 100 finished essentially flat, down just 0.73 points at 9,701.80.
- FTSE 250 slipped 0.2% to 21,982.00. [17]
What moved the market:
- The BoE stress‑test results and capital‑rule easing triggered a rally in bank stocks: Lloyds, Barclays and NatWest all traded 1–2% higher at points in the session. [18]
- At the same time, mining and big pharma stocks – including AstraZeneca – lost ground, offsetting the financials’ gains and leaving the main index flat on the day. [19]
- The Evening Standard and other outlets led with the BoE’s warning that AI‑centric valuations look extreme, reinforcing the idea that this is a late‑cycle, liquidity‑driven phase of the bull market rather than a fresh cycle. [20]
Mood: rotational – investors moved money from “frothy” growth stories into banks and housing‑related cyclicals, but without enough conviction to push the index higher.
Wednesday 3 December – financials drag as WPP shock looms
Mid‑week, the tone turned more negative:
- Reuters reported that the FTSE 100 ended lower, with financial stocks the main drag after the previous day’s rally, while miners recovered on stronger metals prices. [21]
The bigger story, however, came after the close:
- FTSE Russell confirmed in its December 2025 quarterly review that British Land will be promoted to the FTSE 100, replacing WPP, which is being relegated to the FTSE 250 after nearly three decades in the blue‑chip index. [22]
- Coverage from The Guardian and The Times emphasised how far WPP has fallen: its market value has plunged from around £24 billion in 2017 to just over £3 billion, with the share price down by about two‑thirds in 2025 alone after multiple profit warnings and growing concerns that the advertising group has been left behind in AI and data‑driven marketing. [23]
Mood: sober, with investors digesting what WPP’s demotion says about London’s ability to retain global champions – and what British Land’s promotion reveals about renewed interest in UK real estate.
Thursday 4 December – rate‑cut hopes spark a rebound
Thursday saw a more upbeat session:
- The FTSE 100 moved higher as traders latched onto growing speculation that the Fed could cut rates imminently, after a run of softer US data and falling Treasury yields. [24]
- Alliance News reported that the index was supported by real estate, industrials and travel stocks, even as utilities like SSE and National Grid came under pressure after Ofgem approved around £28 billion of new energy‑network investments, implying higher network charges on household bills over time. [25]
However, the macro undercurrent was still uneasy:
- UK construction PMI fell sharply, pointing to a contraction in building activity and underscoring how sensitive the sector remains to high financing costs and fiscal constraints. [26]
Mood: cautious optimism – rate‑cut hopes outweighed domestic growth worries, at least for a day.
Friday 5 December – oil majors and defensives pull FTSE lower
The week ended on a downbeat note:
- Alliance News reported that the FTSE 100 fell around 0.5% on Friday, underperforming European peers even though US inflation data were benign. [27]
- Energy heavyweights such as BP and Shell traded weaker, tracking lower oil prices and broker downgrades, stripping away a key prop for the index. [28]
- Some domestically‑focused mid‑caps on the FTSE 250 outperformed, helped by upbeat newsflow in areas like travel, food and online platforms, but not enough to offset blue‑chip weakness. [29]
By the closing bell, all three main UK equity benchmarks – FTSE 100, FTSE 250 and AIM – had posted modest weekly declines, confirming that December had started with more of a pause than a breakout. [30]
Sector stories: who won and who lost this week?
Banks: capital relief but late‑cycle worries
- Big UK lenders enjoyed a short‑term boost from the BoE’s decision to cut the capital buffer and the clean stress‑test results. Lloyds, Barclays and NatWest all saw decent moves higher in the first half of the week. [31]
- Strategists interviewed across various outlets noted that falling bond yields and the prospect of rate cuts are now a double‑edged sword for banks: good for credit quality and loan demand, but potentially negative for net interest margins if cuts come faster than expected. [32]
Overall, bank stocks looked better supported but not in a new bull trend – consistent with a “late‑cycle compression” narrative rather than a fresh up‑cycle.
Energy and utilities: policy risk front and centre
- Oil & gas names were hit by a combination of lower crude prices, continued political scrutiny of windfall taxes and, in the case of Harbour Energy, plans to cut UK jobs amid complaints about an “uncompetitive tax regime”. [33]
- Utilities came under pressure after Ofgem’s final decision on network price controls: about £28 billion of capital investment was approved, but with higher network charges projected to add roughly £108 to household bills by 2031 before offsetting efficiencies. That spooked investors in SSE, National Grid and peers. [34]
Energy‑linked stocks therefore played a big role in dragging the FTSE 100 lower for the week.
Real estate: British Land’s comeback moment
Real estate provided one of the few clear good‑news stories:
- British Land has been promoted back into the FTSE 100, after strong share‑price performance this year left it the most valuable name in the FTSE 250. Its stock is up around 17% year‑to‑date, reflecting improved sentiment towards UK commercial property as yields stabilise and rate‑cut hopes grow. [35]
- The promotion is seen as a vote of confidence in high‑quality London offices and retail assets at a time when the broader UK REIT sector is beginning to attract more interest from overseas investors and private equity. [36]
Mid‑caps & domestic plays: still unloved, still cheap
Across the FTSE 250 and small caps, the pattern remained familiar:
- Trading was volatile, but sentiment is gradually improving, helped by a string of positive updates from travel operators, specialist industrials and select consumer names. [37]
- Yet research from the Association of Investment Companies highlights that UK‑listed companies remain notably undervalued versus global peers, with an estimated total “distribution yield” (dividends plus buybacks) above 5%. [38]
Several commentators – including in City A.M. and Finimize – argue that this valuation gap, combined with better governance and high cash returns, could make UK mid‑caps a key beneficiary if global investors broaden out beyond the US megacap trade in 2026. [39]
Index shake‑up: British Land in, WPP out
The FTSE UK Index Series December 2025 review was arguably the biggest structural story of the week:
- British Land Co will join the FTSE 100, promoted from the FTSE 250.
- WPP, once the world’s largest advertising group and a FTSE 100 constituent since 1998, will drop down to the FTSE 250.
- Several other names, including GB Group, Pan African Resources, Princes Group and Shawbrook Group, are set to join the FTSE 250, while European Opportunities Trust, Foresight Solar Fund, PayPoint and Pinewood Technologies will leave. [40]
Press coverage emphasised what this says about broader market trends:
- WPP’s demotion follows two profit warnings in 2025 and a collapse in market cap to just over £3 billion, amid client losses and a perception that it has not adapted quickly enough to AI‑driven advertising. New CEO Cindy Rose has launched a strategic review, but analysts warn she may have limited time to turn things around. [41]
- British Land’s return to the blue‑chip index reflects a re‑rating of quality UK property assets as investors bet that rate cuts in 2025–26 will underpin commercial real estate values. [42]
The changes take effect from 22 December 2025, but trading around them has already started, with index funds and benchmark‑constrained investors rebalancing positions in anticipation. [43]
What analysts are saying about the UK stock market now
1. Valuations and flows
A consistent theme across research desks this week:
- UK equities remain cheap compared with US and many European markets, with forward price‑earnings ratios and price‑to‑book multiples still at a discount even after 2025’s strong run. [44]
- The AIC fund‑manager poll suggests that UK stocks are offering total cash returns of more than 5%, once buybacks are included – an attractive entry point for long‑term investors, according to income specialists. [45]
- Strategists quoted in TechStock’s UK stock market opening preview highlight estimates of roughly 12% earnings‑per‑share growth in 2026, following a flat 2025, with contributions from all major sectors. They also note that domestic UK shares now offer about 1 percentage point more dividend yield than the FTSE 100 as a whole. TechStock²
2. Macro and policy outlook
From Saxo Bank’s macro team to wealth‑manager monthly notes, a rough consensus is emerging: [46]
- Central banks are done hiking and are edging toward measured cuts in 2025.
- The Bank of England is widely expected to move cautiously, balancing sticky services inflation against clear signs of cooling growth and a softer labour market.
- Fiscal policy after the Autumn Budget remains tight but predictable, which many investors see as a positive change after years of surprise tax and spending shifts.
Put simply, the macro backdrop is not booming, but it’s no longer hostile to equities – especially those offering reliable cash flows.
Near‑term outlook: what to watch next week (8–12 December 2025)
Hargreaves Lansdown’s preview of the week commencing 8 December flags a clutch of important FTSE 100 and FTSE 250 company updates that could set the tone into year‑end: [47]
- Ashtead (FTSE 100) – Q2 results (9 Dec)
- Revenue is expected to slip around 1–2%, as US construction markets remain sluggish in the wake of high interest rates.
- Analysts are focused on capex plans and whether management signals a pick‑up in 2026 as mega‑projects and infrastructure build‑outs gather pace.
- British American Tobacco (FTSE 100) – Full‑year trading update (9 Dec)
- The group is tracking toward the top end of its 1–2% revenue growth guidance, with consensus expecting about 2.1% growth before FX.
- Investors will watch progress in “New Categories” like vapes and heated tobacco, as well as efforts to bring net debt down to support future buybacks.
- Chemring, Moonpig, Berkeley Group, TUI, NCC Group – a mix of defence, online gifting, housebuilding, travel and cybersecurity updates that should give a cross‑section of consumer and corporate demand heading into 2026. [48]
On the macro side:
- Markets are gearing up for a Bank of England rate decision on 18 December, with growing speculation about a first cut early in 2026 if inflation and growth continue to moderate. TechStock²+1
- Globally, attention will remain glued to US inflation and labour‑market data ahead of the Fed’s own meeting, as well as any surprises out of the eurozone economy. [49]
Short‑term risks for UK equities include:
- A pull‑back in AI and US tech valuations – the very correction the BoE has warned about. [50]
- A sharper‑than‑expected slowdown in UK activity, particularly in construction and consumer‑facing sectors. [51]
Medium‑term view: can undervalued UK equities shine in 2026?
Looking beyond next week, several themes stand out in the latest research and commentary: [52]
- Valuation gap
- UK stocks – especially mid and small caps – still trade at a significant discount to US and many European names on most standard metrics.
- Combined with high cash returns, that provides a cushion against moderate earnings disappointments.
- Rotation potential
- If US megacap tech continues to look stretched, global asset allocators may increasingly seek “new” sources of value and income, with the UK a natural candidate.
- Private‑equity interest, buyback programmes and consolidation activity could remain strong in 2026.
- Policy and politics
- The Reeves Budget and the new Labour government’s approach to business and capital markets will stay under the microscope.
- Measures like potential stamp‑duty reform on share trading and the push to channel more ISA money into UK assets could gradually improve liquidity and sentiment toward London‑listed companies. [53]
- Sector mix
- The FTSE 100 is still heavily tilted toward energy, financials, consumer staples and healthcare – sectors that tend to do reasonably well in a world of lower but positive real interest rates and modest GDP growth.
In other words: the structural case for UK equities looks better than the headlines suggest, but near‑term volatility – particularly if central banks disappoint or AI‑driven valuations deflate – remains a real risk.
Key takeaways for investors and market watchers
- The UK stock market ended the week of 1–6 December 2025 slightly lower, with the FTSE 100 down about 0.6%, the FTSE 250 off 0.5% and AIM down 0.3%. [54]
- The main drivers were mixed economic data, a high‑profile FTSE index reshuffle, weakness in oil majors and utilities, and ongoing debates about rate‑cut timing. [55]
- The Bank of England sent a nuanced message: banks have room to lend more, but equity valuations – especially in AI and tech – look stretched. [56]
- British Land’s promotion and WPP’s relegation crystallised deeper trends in UK real estate and advertising, and provided a focal point for discussions about the health of London’s capital markets. [57]
- Looking ahead, the focus shifts to company results from big names like Ashtead, BAT and TUI, plus the BoE and Fed December meetings, which will heavily influence sentiment into 2026. [58]
As always, this article is for information only and does not constitute investment advice. Anyone considering investing in UK shares should do their own research and, where appropriate, seek regulated financial advice.
References
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