London’s premier stock index staged an impressive recovery on Monday, December 15, 2025, as investors positioned themselves ahead of a highly anticipated interest rate decision from the Bank of England later this week. The FTSE 100 closed up 102.28 points, or 1.1%, at 9,751.31, shaking off weakness from the previous Friday’s session and marking a strong start to what promises to be a pivotal week for UK monetary policy.
The rally represented a decisive shift in market sentiment, with London’s leading index gaining momentum as cyclical sectors attracted renewed investor interest. This performance was particularly noteworthy given the challenging backdrop of weak Asian trading sessions and lingering concerns about artificial intelligence valuations that had pressured US markets at the end of the previous week.
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Bank of England Rate Cut Drives Market Sentiment
The primary catalyst behind Monday’s surge was the growing consensus that the Bank of England will deliver a 25 basis point interest rate cut to 3.75% at its Thursday policy meeting. This would mark the lowest borrowing cost level since January 2023 and represent a significant shift in the UK’s monetary policy stance.
Market pricing reflected this overwhelming confidence, with traders assigning approximately a 90% probability to a December rate cut, according to financial derivatives markets. This expectation has been building for weeks as economic data has painted an increasingly mixed picture of the UK economy’s health.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, explained the market dynamics: “UK markets have a clear focal point this week, with the Bank of England in the spotlight and a rate cut on Thursday widely seen as a done deal. Markets are pricing in around a 90% chance of a move, so, absent any shocks, the decision itself matters less than the Bank’s tone.”
The anticipated rate reduction comes against a backdrop of concerning economic indicators. Recent data from the Office for National Statistics revealed that the UK economy unexpectedly contracted 0.1% in October, following a similar decline in September. This marked the first three-month contraction since December 2023, strengthening the case for monetary easing.
Beyond domestic policy considerations, UK assets are also being influenced by a flood of delayed US economic data and shifting global monetary conditions. The week ahead promises to be dominated by macro forces, with central bank decisions across multiple jurisdictions and critical economic releases that could reshape expectations for 2026.
Precious Metals Sector Leads Market Gains
Monday’s rally was particularly pronounced in the mining sector, where precious metals companies enjoyed a stellar session. The surge was driven by continuing strength in gold and silver prices, with both metals demonstrating remarkable resilience throughout 2025.
“Despite a sell-off in Asia, the FTSE 100 got off to a strong start on Monday, supported by higher precious metals prices,” noted AJ Bell investment director Russ Mould. “The continuing surge in gold and silver helped lift Endeavour Mining and Fresnillo, and there was broader strength in the mining sector, despite weak Chinese data.”
The precious metals rally has been extraordinary by historical standards. Silver prices have climbed 120% in 2025, significantly outpacing gold’s 65% advance. The white metal rose to all-time highs above $64 an ounce during the week, supported by tightening inventories, robust industrial demand, and the metal’s inclusion on the US critical minerals list.
The surge in precious metals has been particularly beneficial for mining companies with significant exposure to these commodities. Industrial demand from sectors vital to the green energy transition, including solar panels, electric vehicles, and data center infrastructure, has been consuming silver at unprecedented rates, with annual industrial demand now exceeding 1.2 billion ounces.
Gold has also enjoyed a strong 2025, with J.P. Morgan forecasting prices to average $3,675 per ounce by the fourth quarter of 2025, climbing toward $4,000 by mid-2026. Central bank demand has been a critical driver, with institutions continuing their strategic accumulation of gold reserves as they diversify away from dollar-centric holdings.
The sickly industrial production and retail figures from China, which traditionally would have weighed heavily on mining stocks, were largely offset by the precious metals momentum. “The sickly industrial production and retail figures strengthen the argument for new stimulus efforts from the government in Beijing,” Mould added. “The relative lack of exposure to AI in the UK is proving more of a boon of late amid increased nervousness about valuations in the space.”
Burberry Leads Individual Stock Gainers
Among individual stocks, luxury brand Burberry emerged as the top riser on Monday, adding 3% as the company traded toward the top end of its trading range. The performance was particularly impressive given that Burberry shares have faced significant volatility throughout 2025, reflecting broader challenges in the luxury goods sector.
Burberry’s gains come as the company works through a comprehensive turnaround strategy under CEO Joshua Schulman. The brand has been focusing on its heritage products, particularly outerwear and scarves, while implementing cost-efficiency programs targeting £80 million in annualized savings by the end of FY26.
The company’s Q2 results delivered the first positive sales comps in two years, with like-for-like sales growth of 2%, providing evidence that the “Burberry Forward” strategy may be gaining traction. Despite these green shoots, the stock remains well below its 2025 peak, and analysts remain divided on whether this represents the start of a durable recovery or merely a temporary reprieve.
Looking at the broader picture, Burberry appears set to close the year with annual gains exceeding 30%, a remarkable recovery from multiyear lows near 600 pence that were reached earlier in 2025. The stock briefly traded above 1,370 pence in late July before settling into its current range, reflecting the ongoing debate about the company’s long-term prospects in a challenging luxury market environment.
Airlines Sector Shows Continued Strength
International Consolidated Airlines Group (IAG), the parent company of British Airways, Iberia, Aer Lingus, and Vueling, was another stock near the top of Monday’s leaderboard. The airline group has been one of the standout performers in the FTSE 100 throughout 2025, with shares jumping approximately 40% year-to-date.
IAG’s strong performance has been underpinned by robust operational metrics and an increasingly shareholder-friendly capital allocation strategy. The company announced an interim dividend of €0.048 per share and nearly completed a €1 billion share buyback program, with management explicitly signaling that further shareholder returns would be announced when full-year 2025 results are published in February 2026.
The airline group’s Q3 operating profit reached €2.05 billion, up 2% year-over-year, with the nine-month operating margin remaining strong at 22%. This performance has been achieved despite some softness in transatlantic load factors, which declined to 86.7% in Q3 from 89.1% a year earlier.
IAG’s transformation from a pandemic recovery story to a cash-generating business has resonated with investors. The group’s balance sheet has strengthened considerably, with net debt down 20% year-over-year to €6 billion and leverage now at 0.8x EBITDA, marking the lowest leverage level since the pandemic.
Analysts have taken notice of this evolution, with the average 12-month price target sitting at 472.40 pence, implying approximately 17% upside from current levels. Some bullish City views see potential for the stock to reach around 679 pence over the next 12 months, though such targets reflect optimistic scenarios where IAG sustains strong profitability and returns more capital than currently anticipated.
Hikma Pharmaceuticals Faces Leadership Challenge
At the opposite end of the spectrum, Hikma Pharmaceuticals was the top faller on Monday, declining after announcing that CEO Riad Mishlawi would step down by mutual agreement. Executive Chairman Said Darwazah, who previously served as CEO from 2007 to 2018 and again from 2022 to 2023, immediately assumed all CEO responsibilities while the board searches for a permanent successor.
The leadership change comes at a particularly challenging time for the generic drugmaker, which has been grappling with manufacturing delays and margin pressures. In November, Hikma trimmed its margin outlook and narrowed its 2025 profit guidance after pushing back the opening of its new US factory in Bedford, Ohio to late 2027, citing equipment delays.
“Things may not have got any worse since November’s disappointing update but it’s no shock to see Hikma Pharmaceuticals CEO Riad Mishlawi head for the exit,” said Russ Mould. “The shares have lost more than a quarter of their value in 2025. The most damaging part of last month’s trading statement was the reduction in medium-term profit growth expectations – which forced a broader reassessment of the investment case than a mere blip in trading would have done.”
The company’s Injectables division, which accounted for 42% of revenue last year, has faced particular pressure amid the manufacturing delays. The leadership change also follows the departure of Bill Larkins as head of the injectables unit, a role Mishlawi had temporarily filled before his own exit.
Despite the management upheaval, Hikma reaffirmed its 2025 guidance, expecting revenue growth of 4% to 6% and core operating profit of $730 million to $750 million. Chief Financial Officer Khalid Nabilsi will join the board and take on expanded management duties to help deliver the group’s strategic plans.
Hikma shares fell over 1% in early Monday trading, touching their lowest levels since December 2022. The stock has declined 23% over the past year, reflecting investor concerns about execution challenges and the delayed benefits from capital investments.
Financial Sector Gains from Rate Cut Expectations
The financial sector was among Monday’s strongest performers, with banks and insurers benefiting from the evolving interest rate outlook. Prudential gained 3.2%, Hiscox rose 3.0%, Barclays added 2.2%, and NatWest climbed 3.0%, as investors recalibrated their expectations for the sector under more accommodative monetary conditions.
The relationship between banks and interest rate cuts is complex and nuanced. While lower rates can support loan demand and reduce impairment risk by making debt servicing more affordable for borrowers, they can also compress net interest margins – the difference between what banks earn on loans and pay on deposits. However, in the current environment, the market appears to be focusing more on the positive aspects, particularly the potential for increased lending activity and improved credit quality.
Rate-sensitive sectors beyond banking also responded positively to the anticipated policy shift. Housebuilders, retailers, and some industrial names have historically benefited from lower borrowing costs, which can stimulate consumer spending and business investment. The broader FTSE 250 index, which has greater exposure to domestic UK economic conditions, ended Monday up 172.61 points, or 0.8%, at 22,049.16.
For the internationally exposed FTSE 100, the rate outlook matters through multiple channels. A weaker pound, which often accompanies rate cuts, typically flatters overseas earnings when translated back into sterling. However, if currency weakness reflects growth concerns rather than simply monetary policy divergence, it can also hit UK domestic cyclicals and raise imported inflation concerns.
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Consumer and Retail Sector Shows Mixed Signals
The consumer sector displayed divergent performance on Monday, with some stocks benefiting from renewed investor interest while others faced headwinds. Haleon gained 2.9% after Morgan Stanley named it “top pick” in the Home & Personal Care sector. The broker believes Haleon, having lagged in 2025, looks set to accelerate organic sales growth in 2026 as it laps US destocking challenges.
Marks & Spencer rose 2.0% after being named as Jefferies’ favoured UK retailer. The broker expressed general caution on consumer sentiment, with M&S representing its only “buy” rating in the retail sector. This cautious stance led Jefferies to downgrade Tesco, Next and Associated British Foods, reflecting concerns about consumer spending power and discretionary income in the face of persistent inflation and weak economic growth.
The divergent views on retail stocks highlight the challenge facing the sector. While some companies with strong brands, efficient operations, and defensive characteristics may weather economic headwinds, the broader retail landscape faces pressure from subdued consumer confidence and household budget constraints. Recent economic data showing GDP contraction and weakness in retail sales has reinforced these concerns.
Defence Sector Faces Geopolitical Uncertainty
BAE Systems bucked the broader market trend, declining 0.4% amid hopes of progress in Ukraine. Over the weekend, Ukrainian President Volodymyr Zelensky indicated that the country would be willing to give up its long-term goal of NATO membership if the US and Europe offered security guarantees to prevent future Russian aggression.
While any progress toward peace in Ukraine would obviously be welcomed from a humanitarian perspective, it creates uncertainty for defence contractors that have benefited from increased military spending and equipment demand throughout the conflict. BAE Systems, as one of Europe’s largest defence companies, has substantial exposure to military procurement programs that could face budget reassessment in a changed geopolitical environment.
However, the longer-term outlook for defence spending remains supportive. Germany has committed to record defence contracts, and broader European rearmament continues regardless of the specific trajectory in Ukraine. The UK government has also maintained its commitment to increasing defence spending to 2.5% of GDP, providing a supportive backdrop for British defence contractors.
Broader European Markets Show Strength
Monday’s positive sentiment extended beyond London, with European markets broadly higher. Germany’s DAX gained 0.2%, while France’s CAC 40 jumped 0.8%. The pan-European STOXX 600 rose 0.8%, demonstrating broad-based strength across the continent.
The positive tone in European markets reflected multiple factors, including the growing expectation that the European Central Bank would maintain rates at its December meeting, anticipated to hold the deposit rate at 2%. This relatively stable outlook for European monetary policy, combined with the Bank of England’s dovish tilt and the Federal Reserve’s recent rate cut, created a supportive environment for risk assets.
Sterling edged 0.1% higher against the dollar, trading at $1.3378 during Monday’s session. The pound’s modest strength came despite rate cut expectations, suggesting that currency markets are focused more on relative policy trajectories and economic fundamentals rather than absolute rate levels.
Housing Market Shows Resilience
In economic data released Monday, Nationwide reported that UK house prices remained resilient throughout 2025 despite relatively subdued consumer sentiment and mortgage rates approximately three times their post-pandemic lows. Mortgage approvals remained near pre-COVID levels, suggesting underlying housing demand has held up better than many expected.
Robert Gardner, Nationwide’s chief economist, commented: “The word that best describes the housing market in 2025 is ‘resilient’. Even though consumer sentiment was relatively subdued, with households reluctant to spend and mortgage rates around three times their post-pandemic lows, mortgage approvals remained near pre-Covid levels.”
Looking ahead, Gardner indicated that Nationwide expected housing market activity “to strengthen a little further as affordability improves gradually (as it has been in recent quarters) via income growth outpacing house price growth and a further modest decline in interest rates.” The building society expects annual house price growth to remain broadly in the 2% to 4% range next year.
This housing market resilience is significant for multiple reasons. It provides support for consumer confidence and wealth effects, underpins lending activity for UK banks, and suggests that the UK economy retains pockets of strength despite the headline GDP contraction. However, it also raises questions about how quickly the Bank of England can cut rates if housing demand remains robust, given the potential for renewed price pressures.
US Markets Provide Cautionary Note
While UK and European markets enjoyed strong gains, US stock markets presented a more cautious picture. The S&P 500 dipped 0.1% lower, the tech-heavy Nasdaq Composite fell 0.4%, and the Dow Jones Industrial Average declined 0.3% during Monday’s trading session.
The weakness in US markets reflected lingering concerns about elevated valuations in technology stocks, particularly those related to artificial intelligence. After a spectacular run throughout much of 2025, with both the S&P 500 and gold posting gains around 30% – marking the first time in history that US stocks and bullion have risen so strongly together – some investors are taking profits and reassessing positioning ahead of year-end.
The divergence between UK/European strength and US weakness highlighted different dynamics at play. While European markets were being lifted by dovish monetary policy expectations and specific sector strength in areas like mining and financials, US markets were dealing with concerns about whether earnings growth can justify current valuations, particularly in the technology sector that has driven much of the market’s gains.
Key Economic Data Week Ahead
Investors face a packed calendar of economic releases this week that could significantly impact market sentiment and central bank expectations. The schedule includes critical UK data that will heavily influence the Bank of England’s policy stance and forward guidance.
Tuesday brings UK jobs numbers, which will be closely scrutinized for signs of labour market deterioration or resilience. Wednesday features the latest consumer price index (CPI) inflation reading, expected to be around 3.5% according to some forecasts. This inflation data is crucial, as a softer-than-expected reading could “lock in” the case for a rate cut and pull down gilt yields, typically supportive for equities. Conversely, a surprise re-acceleration in inflation could force a repricing in rates, potentially pressuring valuations.
Thursday’s Bank of England decision will be the week’s main event for UK markets, with the policy summary and minutes scheduled for 12:00 noon UK time. Beyond the widely expected 25 basis point cut, investors will focus intensely on the accompanying statement and any forward guidance about the pace of future easing. The vote split will also be watched closely, with some suggesting it could be as tight as 5-4, making Governor Andrew Bailey’s stance pivotal.
Friday brings UK retail sales data for November, which will provide insight into the crucial Christmas shopping period and broader consumer spending trends. Given the weakness in recent economic data and concerns about consumer confidence, these figures could significantly influence near-term market sentiment.
Global Central Bank Calendar
The Bank of England decision is just one part of a busy week for central banks globally. The European Central Bank announces its decision on Thursday, with expectations that it will hold its deposit rate at 2%. The Bank of Japan will announce its decision on Friday, with economists predicting it will hike its deposit rate to 0.75%.
This cluster of central bank meetings creates a complex cross-current for global markets. While the Bank of England and potentially other central banks ease policy, the Bank of Japan’s tightening trajectory represents a notable divergence. These differing policy paths have implications for currency markets, capital flows, and relative asset valuations across regions.
For UK investors specifically, the interaction between Bank of England policy and these global monetary dynamics matters considerably. Sterling movements driven by relative policy expectations affect the FTSE 100’s large multinational companies, while gilt yields influenced by global bond market trends impact UK-focused cyclicals and rate-sensitive sectors.
Market Outlook and Key Risks
As 2025 draws to a close, UK equity markets face a complex set of crosscurrents. On the positive side, the FTSE 100 has delivered approximately 19.3% total return year-to-date as of early December, significantly outperforming some global counterparts. This robust performance has been fueled by anticipated interest rate cuts, resurgence in key sectors like mining, and attractive corporate valuations.
However, significant risks remain on the horizon. The UK economy’s technical contraction in the third quarter of 2025 raises questions about the sustainability of corporate earnings growth. While monetary easing can provide support, it cannot fully offset weak underlying economic fundamentals if consumption and investment remain subdued.
Globally, the outlook for 2026 remains highly uncertain. Potential US tariff policies, China’s economic trajectory, the path of inflation, and geopolitical tensions all represent variables that could significantly impact market sentiment. The AI-driven technology sector, while not heavily represented in the FTSE 100, influences global risk appetite and cross-border capital flows.
Within the UK specifically, the government’s fiscal position remains a constraint. Chancellor Rachel Reeves’ budget, which included £26 billion in tax rises and increased spending commitments, aims to stabilize what has been described as a “fragile” fiscal position. However, questions remain about whether the government can deliver growth-enhancing policies while maintaining fiscal discipline.
The mining sector, which has been such a strong contributor to FTSE 100 performance in 2025, faces its own uncertainties. While precious metals have enjoyed remarkable gains, sustainability of current price levels depends on continued central bank demand, industrial consumption patterns, and speculative flows. Any significant reversal in these drivers could impact what has been a key source of index strength.
Conclusion
Monday’s strong performance by the FTSE 100 reflected a market positioning confidently for imminent monetary policy easing while celebrating sector-specific strength in areas like precious metals mining. The 1.1% gain demonstrated that UK equities maintain resilience even as domestic economic data disappoints and global uncertainties persist.
The week ahead will prove crucial in determining whether this positive momentum can be sustained into year-end and beyond. The Bank of England’s rate decision and accompanying guidance will be parsed intensely for clues about the pace and extent of future easing. Economic data releases will either reinforce or challenge the current narrative of an economy weak enough to justify cuts but not so weak as to raise recession fears.
For investors, the current environment presents both opportunities and risks. Sectors positioned to benefit from lower rates, companies with pricing power to navigate inflation, and businesses with international earnings exposure to offset domestic weakness may continue to attract interest. However, selectivity will be crucial, as the divergence between winners and losers within the market is likely to persist.
As the year draws to a close, the FTSE 100’s performance will ultimately depend on whether the positive factors – accommodative monetary policy, strong commodity prices, and attractive valuations – can outweigh the negatives of weak domestic growth, fiscal constraints, and global uncertainties. Monday’s session suggested that, for now at least, investors are willing to give UK equities the benefit of the doubt.
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By: Montel Kamau
Serrari Financial Analyst
16th December, 2025
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