London close: Stocks slip as BoE holds rates steady

The FTSE 100 index fell 1.14% to end at 8,105.32 points, while the FTSE 250 dropped 0.98% to 20,399.38 points.

In currency markets, sterling was last down 0.32% on the dollar to trade at $1.2534, as it fell 0.49% against the euro, changing hands at €1.2087.

“The shockwaves from last night’s ‘hawkish cut’ by the Federal Reserve continue to reverberate,” said IG chief market analyst Chris Beauchamp.

“Investors had hoped for an eventful meeting, but the FOMC’s shift to a more cautious outlook caught the market napping, and the resulting selloff was as quick as it was ugly.

“Unsurprisingly, European markets have been unable to recover their footing today, unlike the US, where the selling has stopped for now.”

Beauchamp noted that the drop dented hopes of a Santa rally, although markets could still manage a modest bounce.

“Short-term oversold conditions, and the indiscriminate nature of the selling across global stocks, could mean a bit of bargain-hunting does take place, which might at least lead to a short-term recovery.

“If nothing else, Jerome Powell has at least delivered a much-needed check to some of the bullish complacency seen among investors of late.”

Bank of England stands pat in sea of global rate decisions

Central banks were at the top of the agenda on Thursday, as the Bank of England held interest rates steady at 4.75%, as expected, in its final meeting of the year.

The decision, supported by six of the nine Monetary Policy Committee members, came amid persistent inflationary pressures.

November’s inflation rose to 2.6%, above the central bank’s 2% target, driven largely by the service sector, where inflation remains elevated at 5.0%.

The MPC acknowledged signs of softening in the labour market and consumer confidence, with GDP contracting for two consecutive months.

While three members advocated for a quarter-point cut, the majority emphasized a cautious approach, noting the need to maintain restrictive monetary policy until inflation risks ease.

“The door is still open to cuts, as this was not an unanimous decision,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

“However, they are expected to be few and far between next year, with the market pricing in just two interest rate cuts.”

In Sweden, the Riksbank cut its key interest rate by 25 basis points to 2.5%, the lowest in nearly two years, marking its fifth rate reduction of 2024.

The central bank signaled the possibility of further easing in early 2025, aiming to stabilise inflation and bolster economic activity.

Similarly, Norway’s Norges Bank kept rates unchanged at a 16-year high of 4.5% but indicated potential rate cuts starting in March 2025 as inflation stabilizes.

The Bank of Japan meanwhile maintained its ultra-loose monetary policy, holding its short-term rate at 0.25%.

The decision, supported by eight of nine board members, came despite a dissenting call to raise rates due to perceived inflationary risks.

The yen fell to a one-month low of 155.48 against the dollar.

Hours earlier, the US Federal Reserve reduced its interest rate but projected a cautious approach to further easing in 2025, unsettling global markets.

On the economic front, German consumer confidence showed a modest recovery.

The GfK consumer confidence index for January rose to -21.3 from -23.1, exceeding expectations.

However, experts noted that confidence remains weak, reflecting ongoing economic uncertainty.

In the US, labour market data revealed a drop in initial jobless claims to 220,000 last week, better than expected.

However, the Philadelphia Fed’s manufacturing index pointed to significant regional economic weakness, falling to -16.4 in December from -5.5 in November, with key sub-indices on new orders and work hours also declining.

Water firms rise on Ofwat determinations, US-exposed stocks slip

On London’s equity markets, water utilities were among the top performers following Ofwat's final determination for the 2025-2030 period, allowing average bill increases of 36% in England and Wales, higher than the initial proposal of 21% but below the companies’ request of 40%.

United Utilities gained 1.24% after the regulator permitted a 32% bill increase, while Severn Trent rose 1.39% on approval for a 47% hike.

Pennon Group outperformed, climbing 2.09%, as South West Water was allowed a 23% rise.

“The reputation of the water utility industry must be plumbing new depths usually reserved for lawyers and estate agents, and news of further price rises will have done nothing to burnish its standing with the general public,” quipped Russ Mould, investment director at AJ Bell.

“The market seems to be more favourable, judging by the increase in the share prices of Pennon, United Utilities and Severn Trent - even if the regulator hasn’t allowed price increases quite on the scale the sector was looking for.

“A 36% average increase through to 2030 is a lot better from the perspective of these companies and their shareholders than the 21% suggested by draft determinations issued in July.”

Elsewhere, Serco Group surged 8.44% after reporting a 9% rise in underlying operating profit to £270m for 2024 and upgrading its cash and net debt guidance.

The outsourcer also highlighted a robust pipeline of new business opportunities, marking its strongest year-end position in more than a decade.

On the downside, stocks with significant US exposure struggled after the Federal Reserve’s hawkish guidance unsettled markets.

Scottish Mortgage Investment Trust fell 0.61%, Barclays dropped 3.18%, Entain slid 2.51%, and Ashtead Group lost 2.94%.

The Fed cut interest rates by 25 basis points but signaled just two reductions next year, fewer than previously expected, leading to overnight losses on Wall Street.

US-focussed investment trusts also declined, with Baillie Gifford US Growth Trust falling 4.3% and Edinburgh Worldwide Investment Trust down 3.81%.

British American Tobacco slipped 2.58% as it traded ex-dividend.

Intermediate Capital Group shed 3.37% despite Jefferies raising its price target on the stock, citing market undervaluation of European alternative asset managers compared to their US peers.

The bank suggested potential for a partial re-rating as market perceptions evolve.

Reporting by Josh White for Sharecast.com.

Market Movers

FTSE 100 (UKX) 8,105.32 -1.14%
FTSE 250 (MCX) 20,399.38 -0.98%
techMARK (TASX) 4,590.44 -1.36%

FTSE 100 - Risers

Severn Trent (SVT) 2,574.00p 0.94%
Imperial Brands (IMB) 2,572.00p 0.55%
Hikma Pharmaceuticals (HIK) 1,935.00p 0.36%
Diageo (DGE) 2,525.50p 0.28%
Admiral Group (ADM) 2,614.00p 0.19%
Hiscox Limited (DI) (HSX) 1,106.00p 0.18%
United Utilities Group (UU.) 1,064.00p 0.05%
RELX FINANCE BV 3.375% GTD NTS 20/03/33 (BW73) 99.72p 0.00%
Reckitt Benckiser Group (RKT) 4,820.00p -0.06%
Frasers Group (FRAS) 609.50p -0.08%

FTSE 100 - Fallers

Pershing Square Holdings Ltd NPV (PSH) 3,722.00p -3.76%
Mondi (MNDI) 1,145.50p -3.66%
Ashtead Group (AHT) 4,990.00p -3.41%
Marks & Spencer Group (MKS) 378.20p -3.40%
British Land Company (BLND) 351.60p -3.35%
Flutter Entertainment (DI) (FLTR) 20,860.00p -3.25%
Anglo American (AAL) 2,338.00p -3.19%
Antofagasta (ANTO) 1,586.00p -3.17%
LondonMetric Property (LMP) 175.60p -3.14%
Convatec Group (CTEC) 222.20p -2.88%

FTSE 250 - Risers

Serco Group (SRP) 150.00p 8.44%
IntegraFin Holding (IHP) 352.00p 3.38%
Just Group (JUST) 163.80p 2.37%
Mitchells & Butlers (MAB) 245.50p 2.29%
HGCapital Trust (HGT) 522.00p 1.95%
Patria Private Equity Trust (PPET) 548.00p 1.85%
TP Icap Group (TCAP) 262.50p 1.55%
PPHE Hotel Group Ltd (PPH) 1,345.00p 1.51%
Energean (ENOG) 985.50p 1.49%
Hilton Food Group (HFG) 924.00p 1.43%

FTSE 250 - Fallers

Wizz Air Holdings (WIZZ) 1,407.00p -6.32%
Baillie Gifford US Growth Trust (USA) 278.00p -4.30%
Dr. Martens (DOCS) 73.20p -4.19%
Oxford Instruments (OXIG) 2,070.00p -4.17%
Herald Investment Trust (HRI) 2,380.00p -4.03%
Edinburgh Worldwide Inv Trust (EWI) 186.80p -3.81%
Moonpig Group (MOON) 218.00p -3.54%
Indivior (INDV) 913.50p -3.38%
Jupiter Fund Management (JUP) 83.10p -3.37%
Workspace Group (WKP) 491.50p -3.25%