Weekly round-up: 12th December – 19th December 2025

The week that was!

UK Purchasing Managers’ Index (PMI) paints a “better than expected picture” of the economy. 

On 16th December, the flash composite PMI came in at 52.1, up from 51.2 in November and beating forecasts of 51.6. This marks the eighth consecutive month of growth in the UK’s private sector. Services PMI rose to 52.1 (from 51.3), surpassing the expected 51.5, while Manufacturing PMI climbed to a 15-month high of 51.2, up from 50.2, topping forecasts of 50.2. The composite PMI blends manufacturing and services into one snapshot of private sector activity.

The PMI is a monthly survey of business activity across the manufacturing and services sectors. Run by S&P Global, it includes roughly 650 companies in each sector.  Respondents report on new orders, output, employment, input costs, and supply chain factors. These responses are compiled into a single index.  A PMI above 50 indicates expansion, whilst a release below 50 indicates contraction.

There seems to have been a significant pickup in business sentiment following the Chancellor’s budget announcement in late November. Firms were reassured that future fiscal tightening would be more gradual and less disruptive than feared.  As a consequence, December saw the strongest growth in new orders in over a year.  Less positive was news on cost pressures, as input costs are continuing to rise with firms increasingly taking the decision to pass these onto underlying customers.

In summary the December PMI release shows the UK private sector continues to inch forward, moving firmly into growth territory, helped by reduced post-Budget uncertainty and recovering demand.  That being said, we should be mindful that growth is still pretty modest, the employment market is weak and the threat of price inflation remains.

US employment – a labour market that’s cooling

In November 2025, the unemployment rate rose to 4.6%, climbing from 4.4% in September and reaching its highest level since September 2021. That equates to around 7.8 million out of work but actively job-hunting.

Nonfarm payrolls suggest that US employers added 64,000 jobs in November, marking a rebound from a 105,000 drop in October, which were largely impacted by deferred federal job cuts tied to the Department of Government Efficiencies (DODGE) from earlier in the year. Sectors seeing growth include Health care: +46,000, Construction: +28,000 and Social assistance: +18,000.

The softer employment backdrop was also reflected in the “average hourly earnings”, with wages 0.1% firmer in November which represented the smallest increase since August 2023.  Year on year earnings increased by 3.5%, which was the slowest annual gain since May 2021.

These data points suggest a jobs market that’s not collapsing but it’s no longer booming either.  Job losses continued to be relatively limited but unemployment is rising slowly.

Bank of England delivers another rate cut for Christmas

The Bank of England (BoE) cut its Bank Rate by 25 basis points to 3.75% on 18th December 2025 marking the fourth rate reduction of the year and restoring rates to their lowest level since early 2023.  The Monetary Policy Committee (MPC), a nine-member body including the Governor, three Deputy Governors, the Bank’s Chief Economist, and four external appointees, meets eight times a year to set the Bank Rate. Decisions are taken by simple majority vote; in the event of a tie, the Governor casts the deciding vote. This structure is designed for independence and transparency, with minutes and a quarterly Monetary Policy Report published to explain their decisions. 

The MPC’s mandate

The MPC’s primary objective is to maintain consumer price inflation at 2%, as measured by the Consumer Prices Index (CPI). Inflation targeting helps ensure price stability, while its secondary aim is to support the government’s goals of sustainable economic growth and employment.

Why the December 2025 Rate Cut?

Several key factors led to the rate cut. Inflation is cooling with the Consumer Price Index (CPI) dropping to 3.2% in November, its lowest level since March and down from 3.6% in October benchmarking below both market expectations and MPC forecasts.  Growth in the UK has also been a challenge with UK GDP contracting by 0.1% in October, marking two consecutive months of decline, while unemployment rose to 5.1%, its highest in nearly five years.

In light of these signals, the MPC decided that tight policy was no longer warranted, choosing instead to gently ease monetary policy.  The decision was passed by a 5:4 majority, with Governor Andrew Bailey switching sides to join the more dovish faction. The minority of voters were more concerned that inflation remains elevated (3.2%), particularly in services, and warned that easing too quickly might reignite price pressures.

This decision underlines a shift in focus: the economy is weakening, inflation is falling, and the MPC is prioritising support albeit carefully, to avoid reigniting price pressure.

German GFK Consumer Confidence

The GfK Consumer Climate index is Germany’s leading measure of consumer sentiment, compiled by GfK in partnership with the Nuremberg Institute for Market Decisions (NIM). Based on interviews with roughly 2,000 households, it assesses people’s expectations on future finances, the general economic outlook, large-purchase plans, saving intentions, and job prospects.  Each response, optimistic or pessimistic, is scored and aggregated into a single number. A positive reading means consumers feel upbeat; a negative value signifies caution or concern.

The report for January sentiment (released on 19 December) fell to -26.9, down from -23.4 in December and missing market forecasts of -23.2.  This was the lowest reading since April 2024.   The decline reflected renewed household caution, with buying willingness slipping (-7.5 vs -6.0 in December) after two months of increases. Also, the propensity to save jumped to its highest since June 2008 (18.7 vs 13.7), as concerns over a possible inflation resurgence and political uncertainty around pension reforms weighed on sentiment. Income expectations fell for a third month (-6.9 vs -0.1), underscoring ongoing pressure on household finances. By contrast, economic expectations turned positive (1.2 vs -1.1), hinting at cautious optimism about the broader outlook.

Household consumption is roughly half of Germany’s GDP. This notable decline in reading suggests increasingly cautious spending, and doesn’t bode well for the initial period of 2026.

So how much Christmas cheer do consumers feel in good old blighty

The UK GfK Consumer Confidence Index is a monthly barometer of how confident UK households feel about money, jobs, the economy, and big-ticket purchases. Conducted by GfK since 1974, it’s based on interviews with around 2,000 people aged 16+ across the UK.  Respondents are asked to answer five questions which include how has their household finances changed over the last 12 months? What are their expectations for the next 12 months?  How has the general economy fared over the last year? What’s their expectations for the economy over the expected next 12 months?  And finally is now a good time for major purchases like furniture or appliances?

Each response (much better to much worse) is scored (+1 to –1) and averaged. The result is a single figure which if it is above zero signals optimism and below zero signals pessimism.

The December release, covering sentiment around the Christmas period saw a mild improvement from -19 to -17 ahead of the forecast -18. Despite the uptick, confidence remains subdued amid persistent cost-of-living pressures and broader economic uncertainty. All five components of the survey improved during the month, rebounding from a November downturn that had been weighed down by pre-budget uncertainty. The major purchase index, which gauges willingness to buy big-ticket items, climbed four points to -11, suggesting stronger holiday sales momentum compared with Black Friday last month. However, GfK Consumer Insights Director Neil Bellamy cautioned that “UK households continue to face cost-of-living pressures despite the recent easing in inflation, alongside rising economic uncertainty, and these conditions are likely to restrain consumer confidence.”.

The Bank of Japan takes on the role of the “Grinch” with a rate rise the week before Christmas

Japan’s central bank made a landmark move in December.  It raised its short term policy rate by 25 basis points, from 0.50% to 0.75%, the highest level in 30 years. The decision was unanimous, signalling growing confidence that inflation and wage growth are now moving together, and the era of ultra cheap money is ending.   The Bank of Japan’s key decision maker is the Policy Board, composed of the Governor (currently Kazuo Ueda), two Deputy Governors and six other appointed experts.  This group meets roughly eight times a year to evaluate economic data, inflation trends, wage growth, and the exchange rate. Their job is to reach consensus whether to raise, hold, or cut rates and they publish a joint statement afterward.  The data points that swung the balance towards an increase was persistent inflation (3%), which has then translated into firm wage reports.  At the press conference following the meeting, Governor Ueda addressed markets, noting that although rates remain “accommodative,” more normalisation is likely.

In short, the BoJ’s December hike marked a clear shift away from decades of ultra loose policy, reflecting both resilient domestic inflation and wage growth. The Policy Board remains cautious, but ready to act again if needed.

What is on the slate for next week (apart from Turkey that is)?

With Christmas just around the corner, there is a much curtailed data schedule next week.

The US Conference Board Consumer Confidence Index

The Conference Board Consumer Confidence Index is a monthly gauge of U.S. household sentiment, created by surveying around 3,000 Americans. It explores five key questions, how consumers view current business conditions? Their assessment of the job market today? Expectations for business conditions over the next six months? Outlook on job availability in half a year? Forecasts for personal income during that period?

Responses are scored and combined into two sub indexes, the present situation Index (current business and jobs) and the expectations Index (future outlook on business, jobs, and income). These are blended into a single index, with values above 100 meaning optimism and below 100 indicate caution.

The December reading, due 23 December, follows a drop to 88.7 in November (from 95.5 in October). That month the present situation fell to 126.9 while expectations sank to 63.2 continuing ten months below the recession warning level of 80.

In plain terms, the Conference Board index offers a window into U.S. consumer mood. If December’s result remains below 100 and especially below 80 for expectations it signals consumers are uneasy. That means they’re likely to spend less, which could slow the economy.

Thank you for taking the time to read our weekly wander through the latest economic releases.  It just leaves me to wish you and yours a very happy Christmas, and we look forward to picking up where we left off in the New Year.

 

This article is designed to provide you with information only. It is not designed to provide you with financial advice. Please seek financial advice if you are still unsure about your options. There may be a charge for this. Remember, tax treatment depends on your individual circumstances and may be subject to change in the future. And the value of investments can go down as well as up, and could be worth less than what was paid in. This information is based on our understanding in December 2025. Aberdeen is not responsible for the information, accuracy and views of external sources.