London, 16 December 2025 — The UK stock market ended Tuesday in the red, with the FTSE 100 dragged lower by a sharp drop in oil prices and broad weakness across defence names, as investors digested fresh labour-market evidence of a slowing economy and positioned for a highly anticipated Bank of England (BoE) rate decision later this week. [1]
FTSE 100 closes lower; FTSE 250 flat as investors weigh jobs data and BoE expectations
The FTSE 100 closed down 0.7% at 9,684.79, while the FTSE 250 finished broadly unchanged (down slightly to 22,040.98) — a split that reflected pressure on heavyweight multinationals and commodity-linked stocks even as pockets of the domestic market held up. The AIM All-Share was marginally higher at 749.41. [2]
Across European equities, the tone was similarly cautious, with Germany’s DAX and France’s CAC 40 ending lower on the day, reinforcing the broader “risk-off” feel that took hold as traders looked ahead to a busy run of macro events. [3]
Market snapshot: what moved UK stocks today
A few forces dominated the narrative in London:
- Oil sank below key levels, hammering energy majors and the broader oil & gas complex. [4]
- Defence shares retreated amid renewed optimism around Russia–Ukraine peace discussions, a headline that has tended to pressure the sector whenever it gains traction. [5]
- UK data signalled a softening economy: unemployment rose, private-sector wage growth eased, but business surveys (PMIs) showed tentative signs of stabilisation after late-November budget uncertainty faded. [6]
- The pound strengthened, which can act as a headwind for internationally exposed FTSE 100 names by reducing the sterling value of overseas earnings. [7]
Oil and defence stocks lead the decline as Brent drops through $60
The clearest pressure point for the FTSE 100 was energy. Reuters reported the energy sector fell about 3%, tracking a “steep fall” in oil prices as markets reacted to growing hopes that progress in Russia–Ukraine peace talks could eventually loosen sanctions and lift supply expectations. [8]
By the close, Brent crude was down around 2%–3% and trading below $60 a barrel, a psychologically important threshold closely watched by commodity desks. [9]
That oil move showed up quickly in big index constituents. On Investing.com’s close data, BP fell 3.42% and Shell slid 2.67%, helping to pull the UK benchmark lower. [10]
Defence names retreat on peace-deal headlines
Defence stocks were another notable drag. Reuters said the Aerospace & Defence index fell 1.6%, with BAE Systems down 1.9% and Babcock down 4.1% amid headlines tied to potential security guarantees and ongoing discussions related to a proposed peace framework. [11]
The broader European defence complex also weakened on the same theme, underlining that this was not just a UK-specific move but part of a wider sector rotation across the region. [12]
UK labour market weakens: unemployment hits 5.1% as payrolls fall
Today’s macro backdrop mattered because it is feeding directly into the rate path — and therefore into valuations for UK equities, banks, property-linked shares, and rate-sensitive consumer names.
Official figures showed the UK unemployment rate rose to 5.1% (the highest since early 2021), while private-sector pay growth (ex-bonuses) slowed to 3.9%, and payrolled employment fell by 38,000 in November — evidence, in Reuters’ words, that the jobs market “buckled” heading into the latest budget cycle. [13]
Why markets cared: a softening labour market typically reduces wage-driven inflation pressure, giving the BoE more room to cut — but it also raises worries about a deeper demand slowdown, which can ultimately weigh on earnings expectations. [14]
PMI surprise hints at modest growth, but the outlook remains fragile
In contrast to the weak jobs read, business surveys were a little brighter. The latest preliminary S&P Global UK PMIshowed the composite index rose to 52.1 in December from 51.2 in November, coming in above forecasts in a Reuters poll (and staying above the 50-mark that typically separates expansion from contraction). [15]
However, Reuters also noted the survey still implied only around 0.1% GDP growth in Q4, and that job cuts remained evident as firms adjusted to higher employment costs and uncertainty around policy and tax settings. [16]
Bloomberg’s UK markets wrap captured the push-pull clearly: PMIs “better than estimated” encouraged investors to trim some longer-dated rate-cut bets, even as the broader labour-market trend continues to soften. [17]
Sterling and gilts: the “hawkish cut” question is back in focus
A firmer pound was another feature of today’s session — and it mattered for UK shares.
Reuters said sterling gained after the data, with the pound around $1.34, while two-year gilt yields (a key policy-sensitive maturity) were near 3.77% as investors calibrated the likely BoE decision and the path beyond it. [18]
Crucially, markets were still pricing a very high chance of a rate cut this Thursday (18 Dec 2025). Reuters put the probability at about 90%, with investors pricing roughly 60 basis points of cuts by the end of next year. [19]
What’s the market’s base case for Thursday?
Most analysts polled by Reuters expected the BoE to deliver a 25bp cut to 3.75% from 4.00%, potentially by a narrow vote split — a setup that makes the tone of guidance and the vote breakdown almost as important as the cut itself. [20]
MarketPulse (OANDA) framed the core risk for investors as a “hawkish cut”: the BoE could cut rates to support growth, but signal caution on the pace of further easing — a combination that might keep sterling supported and blunt any immediate equity relief rally. [21]
Winners and losers: IG Group jumps, Serica rises, airlines gain; oil majors and media slip
Despite the overall decline, there were notable single-stock moves that helped define the day’s tape.
Standout gainers
- IG Group jumped 8.1%, after the online trading platform said it expects to deliver revenue growth around the midpoint of its guided range in 2026 — a sharp upside move that lifted parts of the UK financial services space even as banks were softer. [22]
- Serica Energy rose 5.3% after announcing an agreement to acquire a portfolio of Southern North Sea assets from Spirit Energy. [23]
- EasyJet gained about 3.4%, benefiting from the day’s drop in crude prices — a reminder that lower fuel costs can quickly improve sentiment in airlines and travel names. [24]
- On Investing.com’s close list, retailers and consumer names also featured among gainers, including B&M (+3.42%) and JD Sports (+2.64%). [25]
Biggest drags
- BP (-3.42%) and Shell (-2.67%) fell as oil slid sharply. [26]
- Media-focused stocks were among the weaker areas noted by Reuters, alongside banks. [27]
- Informa fell 3.03% on Investing.com’s close data, adding to index-level pressure. [28]
Shell–BP bid story adds another angle for energy investors
Separately, an additional piece of energy-sector news circulated through the market: Reuters reported that Shell’s M&A chief Greg Gut departed after senior leadership blocked an internal proposal to acquire BP, a story first reported by the Financial Times. [29]
While oil prices were the dominant driver of the day’s energy weakness, this corporate storyline adds to the “what next?” debate around capital allocation among UK oil majors — especially in a tape where crude volatility is doing much of the heavy lifting. [30]
Forecasts and near-term outlook: what to watch next for UK stocks
With the FTSE 100 closing near 9,685, investors now face a tightly packed calendar where macro catalysts could outweigh company-specific news.
1) UK inflation on Wednesday (17 Dec)
Reuters flagged that the next key release is November CPI, expected to show headline inflation easing to around 3.5%from 3.6% previously — still well above the BoE’s 2% target, but moving in the right direction for rate-cut advocates. [31]
A downside inflation surprise would strengthen the case for not just a cut this week, but potentially a faster pace of easing in 2026; an upside surprise would raise the odds of a more cautious (“hawkish”) message even if the BoE still cuts. [32]
2) Bank of England decision on Thursday (18 Dec)
The market’s central expectation remains a 25bp cut to 3.75%. The bigger question is what the BoE signals about 2026 — and whether it validates or pushes back against current market pricing. [33]
Reuters quoted Jefferies’ view that the BoE may ultimately cut faster than markets currently price, with the Bank Rate potentially falling to 3% by end-2026 — a longer-range forecast that, if it gained traction, would likely favour rate-sensitive UK sectors (housebuilders, mid-cap domestic cyclicals) but could weigh on sterling and support overseas earners within the FTSE 100. [34]
3) Oil and geopolitics remain the swing factor for the FTSE 100
Today was a live demonstration of how quickly commodity moves can dominate the UK’s blue-chip index. With Brent trading below $60 and geopolitics driving marginal price expectations, energy’s contribution to FTSE direction can stay outsized into year-end. [35]
4) “Santa rally” hopes fade — but year-to-date gains remain strong
One reason pullbacks have been met with mixed reactions is that the UK market has already had a solid run in 2025. Investing.com’s analysis noted the FTSE 100 was up about 19.2% year to date (with the FTSE 250 up 6.7%), meaning some investors are now more inclined to protect gains rather than chase late-December momentum. [36]
Bottom line: UK stocks are now trading the BoE, oil — and the pound
The UK stock market today was less about a single corporate shock and more about how multiple macro levers are interacting at once:
- weakening jobs data pushing toward a BoE cut, [37]
- a PMI uptick improving the near-term growth pulse but not eliminating fragility, [38]
- and a sharp oil selloff pressuring the FTSE’s heavyweights while supporting airlines and some travel names. [39]
With UK CPI on Wednesday and the BoE on Thursday, the next 48 hours are likely to determine whether today’s dip is a brief consolidation — or the start of a more meaningful year-end de-risking move in London equities. [40]
References
1. www.reuters.com, 2. www.independent.co.uk, 3. www.independent.co.uk, 4. www.reuters.com, 5. www.reuters.com, 6. www.reuters.com, 7. www.reuters.com, 8. www.reuters.com, 9. www.bloomberg.com, 10. uk.investing.com, 11. www.reuters.com, 12. www.tradingview.com, 13. www.reuters.com, 14. www.reuters.com, 15. www.reuters.com, 16. www.reuters.com, 17. www.bloomberg.com, 18. www.reuters.com, 19. www.reuters.com, 20. www.reuters.com, 21. www.marketpulse.com, 22. www.reuters.com, 23. www.reuters.com, 24. www.reuters.com, 25. uk.investing.com, 26. uk.investing.com, 27. www.reuters.com, 28. uk.investing.com, 29. www.reuters.com, 30. www.reuters.com, 31. www.reuters.com, 32. www.marketpulse.com, 33. www.reuters.com, 34. www.reuters.com, 35. www.reuters.com, 36. uk.investing.com, 37. www.reuters.com, 38. www.reuters.com, 39. www.reuters.com, 40. www.reuters.com
