Stock markets are under pressure after the Federal Reserve cooled expectations on 2025 interest rate cuts.
The guidance came ahead of the latest Bank of England meeting, with policymakers set to leave interest rates at 4.75%.
Meanwhile, households and businesses are facing big hikes in their water bills over the next five years.
FTSE 100 Live Thursday
- Water bills set for big rise
- US rates outlook hits stocks
- Smaller firms in takeover sights
Market update: US rates outlook hits FTSE 100, water stocks rise
10:30 , Graeme EvansStocks with US exposure fell sharply today as the FTSE 100 index weakened 1.2% on signs that American borrowing costs will take longer to drop.
Last night’s Federal Reserve projection of just two interest rate cuts in 2025 boosted the dollar and left the S&P 500 index 3% lower by the close.
The setback impacted European markets ahead of today’s expected no change policy decision by the Bank of England, with the FTSE 100 index down 99.44 points to 8099.67.
Big fallers included Barclays as about 40% of its income is dollar-based through operations in investment banking and US consumer lending.
The shares have bounced in recent weeks amid hopes that a Trump administration will be a favourable one for the lender in terms of regulation, taxation and pro-growth policies.
Barclays remains 65% higher this year, despite today’s fall of 3% or 9.3p to 257.8p.
Tech-focused Scottish Mortgage Investment Trust, which includes Wall Street stocks Tesla, Amazon.com and Nvidia in its portfolio, fell 32.8p to 924.2p at the top of the fallers board.
It was joined by Alphabet-backer Pershing Square Holdings, which reversed 118p to 3760p.
Other fallers included financial data business Experian, which lost 120p to 3489p, and Sunbelt equipment firm Ashtead after a decline of 106p to 5060p.
With the UK’s 10-year bond yield now above 4.6% on the back of the Federal Reserve’s hawkish stance, rate-sensitive property firms and housebuilders came under pressure.
This meant British Land weakened by 7p to 356.8p, while Barratt Redrow also dipped 2% following a reverse of 8.6p to 429.2p.
The FTSE 100 risers board featured just three stocks, with two of them from the water sector after Ofwat published its final determination for bills between 2025 and 2030.
The regulator scaled back the industry’s proposed bill increases of 44% to 36%, an outcome that was met with relief in the City after Severn Trent rose 31p to 2581p and United Utilities lifted 7.5p to 1071p.
In the FTSE 250 index, South West water business Pennon rallied 3% or 15.7p to 601.2p.
Other mid-cap risers included Serco after the outsourcing firm’s reassuring year-end update helped shares to pull out of their recent slump.
It highlighted a resilient outlook for 2025, with revenue set to be similar to 2024 despite a potential 7% reduction relating to UK and Australian immigration contracts.
Shares rose 7% or 9.6p to 148.3p in a session when the FTSE 250 index declined 1.2% or 242.67 points to 20,359.32.
Inflation outlook makes US rate cuts harder to justify
09:53 , Graeme EvansThe softening of the Federal Reserve’s stance on rate cuts comes amid expectations that inflation will be 2.5% by the end of next year, up from the central bank’s September estimate of 2.1%.
Last night’s quarter point cut by the Federal Reserve has also taken policy closer to the neutral rate, at which it neither boosts nor slows the economy.
UBS Global Wealth Management said the closer the Fed is to neutral the harder it becomes to justify further cuts.
It expects near-term volatility as markets recalibrate the Fed’s standpoint but still sees the S&P 500 at 6600 by the end of next year.
The bank said: “A mixture of resilient US activity, lower borrowing costs, a broadening of US earnings growth, further AI monetisation, and the potential for greater capital market activity under a second Trump administration create a favourable backdrop for US equities, in our view.”
Smaller companies vulnerable as bidders circle
09:20 , Graeme EvansA third of small and mid-cap AIM-listed businesses are vulnerable to bids, an investment bank warned today.
Peel Hunt predicted that the trend of London listed companies being “taken out” by private equity or foreign based corporate raiders will accelerate in the New Year “absent an unexpected change in circumstances.”
A total of 88 companies delisted or transferred their primary listing from London’s main market this year, the highest since the financial crisis, with only 18 taking their place.
The report titled “Barbarians at the Gate” said: “We observe a wave of demand approaching the shores of the UK – with strategic and private equity buyers simultaneously active – and our coastal defences feel weaker than ever.”
FTSE 100 falls 1% after Federal Reserve guidance, Barclays down 3%
08:16 , Graeme EvansThe FTSE 100 index has fallen 1.1%, down 92.11 points to 8107, after the Federal Reserve last night pointed to fewer interest rate cuts in 2025.
The S&P 500 index fell by 3% and the US dollar index rallied by 1.2% in the wake of the guidance, which came alongside a quarter point cut in rates.
Big fallers in London included Barclays, which has investment banking and consumer lending operations in the US. Its shares fell 3% or 8.45p to 258.6p.
Sunbelt equipment hire firm Ashtead dropped 2% or 108p to 5058p while BP reversed 1% or 3,85p to 379.5p.
In the utilities sector, Severn Trent rose 28p to 2578p and United Utilities by 1.5p to 1065p following today’s bills announcement by Ofwat.
Bank of England continues wait-and-see approach
07:48 , Graeme EvansThe Bank of England is expected to stick to its gradual approach to easing monetary policy by leaving interest rates at 4.75% later today.
The Bank’s monetary policy committee (MPC) cut by 0.25% last month, but with inflation up to 2.6% members remain concerned about lingering price pressures in the UK economy.
Deutsche Bank said Budget uncertainty, particularly the impact of the hike in employer National Insurance contributions, will mean policymakers will want to see more data before deciding on their next move.
It said: “In short, the MPC's Christmas message will likely be simple: a gradual dial down of restrictive policy remains the appropriate policy stance.”
Water bills set for big rise over next five years
07:25 , Graeme EvansWater bills are to rise by an average £157 or 36% over the next five years, industry regulator Ofwat said today.
The average bill increase in 2025-26 will be £86, excluding inflation, with smaller percentage increases in each of the next four years.
Publishing its final determination, Ofwat said it had removed £8 billion or 7% of costs from business plans and reduced the allowed rate of return on investment compared with companies' requests.
Water companies had proposed bill increases of 44%. In comparison with proposed 2029-30 bills, Southern Water's bill has been reduced by £126 or 16% and Thames Water by £79 or 12%.
The increased bills will allow investment to quadruple, including on cutting spills from storm overflows.
Ofwat chief executive David Black said: "Today marks a significant moment.
“It provides water companies with an opportunity to regain customers' trust by using this £104 billion upgrade to turn around their environmental record and improve services to customers.”
FTSE 100 seen sharply lower after US sell-off
07:02 , Graeme EvansThe FTSE 100 index is seen falling more than 1% after 2025 projections by the US Federal Reserve caused Wall Street markets to slide last night.
The Dow Jones Industrial Average reversed 2.6% to register its tenth straight fall, while the S&P 500 index fell 3% from record territory and the Nasdaq Composite tumbled 3.6%.
The selling followed a quarter point interest rate cut by the US central bank, which was accompanied by charts showing only two such moves next year.
Futures trading suggests that the FTSE 100 index will fall 98 points to 8101.
Last night’s developments boosted the dollar to leave the pound at $1.259 ahead of today’s expected no change on interest rates decision by the Bank of England.
