December wrapped up 2025 with calmer markets, dovish central bank signals and a strong finish for UK equities – even as underlying economic data painted a mixed picture.
The Bank of England kicked off a sustained rate-cutting cycle, inflation continued its descent and the FTSE 100 capped off one of its best years in over a decade. Consumer and housing data, however, underlined ongoing economic fragilities, while global monetary policy divergence and trade dynamics shaped investor positioning.
UK
- UK delivered: The FTSE 100 Index finished December positive and contributed to the best calendar year performance for the index since 2009 (+25%).
- Easing policy. In mid-December, the Bank of Englandcut Bank Rate by 0.25% to 3.75%, marking a fresh pivot toward easier monetary policy.
- Inflation continued to fall: Headline CPI hit 3.2% in November, considerably down and supporting the BoE’s more accommodative stance.
- Mixed economic data: Latest indicators pointed to weak GDP dynamics and rising unemployment pressures, with firms reported softer labour market conditions.
- Consumer strength uneven. Retail volumes underperformed over the festive period, reflecting pressured household budgets despite a modest rise in total expected Christmas spend.
- Housing market softens. House prices dipped toward six-month lows in December, illustrating caution among buyers amid lingering economic uncertainty.
Global
- Diverging global monetary policy shaped asset prices.
- The U.S. Federal Reserve delivered its third consecutive rate cut in December (to roughly 3.5%–3.75%) but signalled a more cautious stance on future easing.
- The ECB held rates steady, signalling confidence in inflation trending toward its 2% target, while growth forecasts were modestly upgraded.
- In contrast, Japan raised rates by 0.25% to 0.75%, underscoring that global policy directions remain far from uniform.
- Commodity-linked sectors outperformed, supported by stronger metals and energy prices, while technology names saw mixed sentiment amongst changing AI narratives.
- Emerging markets showed resilience, with some regional indices outperforming as investors diversified beyond developed markets.
Fixed interest and currency
- Bond markets reflected the easing cycle. UK gilt yields moved downwards (price upwards) in response to the Bank of England’s rate cut and prospects for further accommodation.
- Globally, market pricing implies more gradual reductions going into 2026 as policymakers balance disinflation with growth and labour market signals.
- Sterling traded with modest weakness against key peers as markets priced in the shift in UK policy.
Other
- Precious metals outperformed most risk assets, driven by broad safe-haven demand. Gold delivered one of its strongest annual performances since the late 1970s.
- Oil prices continued to weaken in the month, a continuing trend as global supply outpaced demand and inventories stayed elevated.
- Brent crude finished the year lower than early 2025 levels, reflecting a challenging backdrop for energy markets even as geopolitical risk occasionally spiked.
- In the UK, new listing rules for cryptocurrencies signalled tighter standards for market participants and potentially reducing speculative activity on unregulated exchanges.
- Cryptocurrencies underperformed broader markets in the final quarter and over the year. Bitcoin and other major digital assets continued to sell of in December.
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This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
