UK markets edged slightly higher this week, with the FTSE 100 Index rising by 0.15% to trade at 9,725 points at the time of writing.
The Pound strengthened to around $1.33 this week, reaching its strongest level since late October, after the S&P Global UK Services Purchasing Managers’ Index (PMI) came in at 51.3 for November, compared with analysts’ expectations of 50.5. A reading above 50 indicates expansion in activity since the previous month.
The stronger-than-expected economic activity data triggered an unwinding of negative bets against Sterling. With investors’ concerns ahead of last week’s Budget now eased, and with economic data suggesting a steadying of growth, the market has become less cautious in the near term with regard to GBP.
UK businesses cut jobs at the fastest pace in four years last month, while builders reported the steepest downturn since Covid-19 struck in 2020, as uncertainty in the run-up to Rachel Reeves’ Budget hit headcount and activity.
Companies reduced employment by an annual rate of 1.8% in November, the biggest contraction since July 2021, according to a Bank of England survey of chief financial officers published on Thursday. They also expected headcount to drop by 0.7% in the year ahead, the worst reading since October 2020, pointing to the effect of speculation ahead of the Chancellor’s fiscal statement last week and the continued impact of higher payroll taxes in Reeves’ first Budget in 2024.
Despite the job cuts, wage and price pressures remained strong, according to the Bank of England survey, which was conducted in the two weeks to 21 November.
Businesses’ wage growth expectations for the year ahead declined slightly from 3.8% in October to 3.6% last month, even as annual pay growth accelerated to 4.6% from 4.2% in the same period. Expectations for prices charged on their goods and services over the year ahead rose to 3.7% in the three months to November, up 0.1% on the three months to October.
Elsewhere, UK house prices withstood market nervousness in the run-up to the Budget and pressures from high interest rates, gaining 0.3% in November compared with the previous month. The month-on-month rise took the average property cost to £272,998, according to data from lender Nationwide published on Tuesday.
Prices were up 1.8% from November last year, easing from the 2.4% recorded in the previous month. Both figures were stronger than the 0.1% monthly rise and 1.4% annual increase forecast by economists polled by Reuters.
Commodity markets
In the commodity markets, Brent crude futures traded around $63 per barrel on Friday and are set to end the week slightly higher on investors’ expectations for the Federal Reserve to cut interest rates, while stalled Ukraine peace talks tempered expectations of a deal restoring Russian oil flows.
Russia and the US failed to reach a compromise after a five-hour meeting between Russian President, Vladimir Putin and US President Donald Trump’s top envoys, the Russian government said on Wednesday.
Previously, expectations of an end to the war had pressured prices lower, as traders anticipated a deal would allow Russian oil back into an already oversupplied global market. Escalating tensions between the US and Venezuela were also supporting prices, analysts said, on concerns of a drop in crude supplies from the South American country.
Elsewhere, Fitch Ratings cut its 2025–2027 oil price assumptions on Thursday to reflect market oversupply and production growth that is expected to outstrip demand. Meanwhile, Kazakhstan’s oil and gas condensate production declined by 6% in the first two days of December, following a Ukrainian drone attack on the Caspian Pipeline Consortium’s Black Sea loading facility.
Gold prices traded around $4,220 an ounce on Friday and are set for a weekly rise as investors held onto expectations of a Federal Reserve rate cut next week.
Equity markets
US equity futures rose on Friday as investors looked ahead to the Personal Consumption Expenditures Price Index inflation report that could shape the Federal Reserve’s policy outlook. In Wednesday’s regular trading session, the Dow Jones Industrial Average fell 0.07%, the S&P 500 gained 0.11%, and the Nasdaq Composite advanced 0.22%.
Private employers in the US shed 32,000 jobs in November as smaller companies cut back on positions, according to unofficial data that has become a prominent indicator of the health of the world’s largest economy. The figure from payroll processor ADP compares with expectations of a 10,000 job gain among economists polled by Bloomberg and an upwardly revised increase of 47,000 in the previous month.
The job losses were led by smaller companies with fewer than 50 employees, which shed 120,000 positions. The report will boost the case for the Federal Reserve to cut interest rates for a third time this year, when its policy-setting committee meets on 9–10 December to vote on borrowing costs. The ADP report has been closely watched by investors and policymakers in recent months after the federal government shutdown, which ended in mid-November, caused some reports to be delayed and others scrapped.
The official November employment report from the Bureau of Labor Statistics has been postponed until 16 December, after the Federal Reserve meeting. The central bank’s Federal Open Market Committee has been split over the scale and pace of rate cuts, with more dovish members favouring greater action to bolster the labour market, while more hawkish members prefer to wait until the effects of new tariffs on inflation become clear. ADP added that wage growth fell from 4.5% in October to 4.4% in November.
The information provided in this communication is not advice or a personal recommendation, and you should not make any investment decisions on the basis of it. If you are unsure of whether an investment is right for you, please seek advice. If you choose to invest, your capital may be at risk and the value of an investment may fall as well as rise in value, so you could get back less than you originally invested.