Market Commentary: Week to 16 December 2025

Market Commentary: Week to 16 December 2025

16 December 2025

Market news

The past week revealed unexpected weakness in the UK economy, with Gross Domestic Product ("GDP") contracting by 0.1% in October against expectations for modest expansion. The decline was driven by falls in both services and construction, alongside a steep 17.7% drop in motor vehicle production, as pre-Budget fiscal anxiety weighed heavily on output. Despite this immediate slowdown, the Confederation of British Industry ("CBI") upgraded its growth outlook, raising its 2026 GDP forecast to 1.3% and 2025 to 1.4%, citing a temporary boost from government spending while warning that deep-rooted structural problems remain. Meanwhile, the latest Bank of England ("BoE") & Ipsos survey signalled a gradual easing in public inflation expectations for the year ahead to 3.5%, though hawkish policymakers continue to warn of persistent upward risks.

The UK's fiscal framework came under renewed focus as the Treasury Select Committee launched an inquiry into the Office for Budget Responsibility ("OBR") to examine the accuracy and impartiality of its forecasts. Despite this scrutiny, the UK government bond market has demonstrated relative stability, with the risk premium on gilts narrowing against G7 peers over the last three months. Yields have proven more resilient than US and Eurozone equivalents, supported by Chancellor Reeves' larger fiscal buffer and reduced issuance needs, which contrasts with the increasingly expansionary fiscal stance in Germany. Meanwhile, the government's net-zero roadmap appeared to waver; industry leaders warned that the 2030 ban on new petrol and diesel cars is likely to be delayed, following signals that the EU is set to drop similar mandates.

US equities were mixed, marked by a sharp rotation from technology to cyclical sectors. The Dow Jones (+1.00%) and Russell 2000 (+1.19%) rose, supported by value and high-beta stocks. In contrast, the S&P 500 (-0.6%) and Nasdaq (-2.1%) fell as Big Tech faltered, notably Meta (-4.30%) and Alphabet (-3.7%), alongside disappointing updates from Oracle (-12.7%) and Broadcom (-7.8%). Pockets of optimism included Disney (+6%) after a $1 billion OpenAI investment and Nvidia's H200 chip approval for China. The Federal Reserve ("Fed") cut interest rates by 25 basis points to 3.5-3.75%, though the contentious decision (three dissents) suggested only one further cut in 2026. Treasury yields steepened, with the 10-year and 30-year touching levels not seen since September, while the dollar index fell 0.6%. Elsewhere, WTI crude oil dropped 4.4%, while Gold (+2%) and Bitcoin futures (+3.6%) both advanced.

The UK housing market exhibited further signs of weakness, with the latest Royal Institution of Chartered Surveyors' ("RICS") survey revealing that buyer demand has hit a two-year low. The net balance for new enquiries dropped to -32%, while agreed sales remained firmly in negative territory at -23%, underscoring a clear downward trend in activity. Near-term sentiment also soured, with sales expectations deteriorating to -6%. Compounding pressure on the prime market, Treasury ministers admitted the proposed "mansion tax" could significantly erode property values. Under the new tiered levy, a £2 million home is estimated to lose over £50,000 in value, with owners facing annual surcharges of up to £7,500 for properties worth more than £5 million.

Stock focus

Unilever, the consumer goods giant, surged 16.24% last week, standing out as a top performer on the London Stock Exchange. The sharp rally was catalysed by the share consolidation following the completion of the demerger of its ice cream business into a standalone listed entity. Investors welcomed the strategic move to streamline the portfolio, viewing the separation as a key step in focusing on higher-growth categories and improving operational efficiency. This structural shift, combined with a flight to quality amid broader market volatility, also drove interest in the stock.

WPP, the world's largest advertising group, rallied 10.72%, outperforming the wider market as investors rotated back into cyclical stocks. The company benefited from the broader shift away from technology and momentum names into value sectors, alongside renewed optimism regarding 2026 advertising budgets. With the US economy showing resilience and global growth forecasts being upgraded by bodies like the CBI, sentiment towards marketing spend has improved, alleviating fears of a structural slowdown in the agency sector.

Informa, the international events and academic publishing group, was the standout laggard, falling 5.57%. The decline tracked the release of weak domestic data, which revealed a surprise 0.3% contraction in the UK services sector. While other cyclical stocks rallied, Informa appeared to suffer from specific concerns that the cooling economic backdrop and fiscal drag could lead to tighter corporate budgets, weighing on attendance and spending at its major global exhibitions.

Market Commentary prepared by Walker Crips Investment Management Limited.

Important information

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