London midday: Stocks nudge up but FTSE underperforms European peers

(Sharecast News) - London stocks had nudged up by midday on Monday but gains were muted as investors mulled uninspiring UK data releases. The FTSE 100 was up just 0.1% at 8,229.63.

UK markets were significantly underperforming their European counterparts, which jumped on a Washing Post report that President-elect Donald Trump's aides are exploring tariff plans that would be applied to every country but only cover critical imports. This marks a key shift from his plans during the 2024 presidential campaign.

As a candidate, Trump had called for "universal" tariffs of as high as 10% or 20% on everything imported into the US. Many economists warned that such plans could cause price shocks, and many Republicans in Congress might had criticised them.

It was understood that two weeks before Trump takes office, his aides are still discussing plans to impose import duties on goods from every country. However, three sources told the Washington Post that rather than apply tariffs to all imports, the current discussions centre on imposing them only on certain sectors deemed critical to national or economic security.

On the UK macro front, a survey out earlier showed that business activity barely grew in December, while employment in the service sector fell at its fastest pace in nearly four years.

The S&P Global services PMI business activity index nudged up to 51.1 from 50.8 in November. It was above the 50.0 mark that separates contraction from expansion for the fourteenth month in a row. However, it signalled only a marginal expansion of business activity.

Meanwhile, the PMI composite output index came in at 50.4 in December, down from 50.5 in November and the lowest reading since October 2023.

Tim Moore, economics director at S&P Global Market Intelligence, said: "The service sector ended last year with only a marginal upturn in business activity and a near-stalling of incoming new work. Survey respondents suggested that falling business and consumer confidence, largely due to worries about domestic economic prospects in 2025, had led to a considerable loss of growth momentum. While most parts of the UK service economy noted weak demand and cutbacks to client budgets, there remained pockets of strong growth in areas such as technology services.

"A post-Budget slump in business optimism persisted in December, with output growth expectations for the year ahead unchanged from November's 23-month low. Concerns about the impact of rising payroll costs, alongside a general unease about the climate for business investment, were reported as the main factors weighing on prospects for growth in 2025."

Moore said that faced with subdued demand conditions and hikes to employment costs, many service providers opted to curtail their staff hiring and delay backfilling roles in December.

"Nearly one-in-four survey respondents saw an overall decline in their payroll numbers. Excluding the pandemic, this represented the steepest pace of job shedding for more than 15 years," he said.

Investors were also digesting the fourth-quarter survey from the British Chambers of Commerce, which showed that proposed tax changes in the Autumn Budget pushed business confidence to its lowest level in more than two years, with more than half of firms expecting prices to rise in the first quarter of 2025.

According to the survey, 63% of UK businesses say taxation is now a concern following the changes, up from 48% in the third quarter and the highest level since 2017.

In October, the chancellor announced that, from April 2025, the earnings threshold at which employers start paying national insurance contributions will fall from £9,100 to £5,000, while the rate being paid will rise from 13.8% to 15.0%.

Some 55% of firms now expect prices to go up over the next three months with labour costs the biggest driver, the BCC said. This compares with just 39% in the third quarter.

The BCC's Quarterly Economic Survey, which includes responses from nearly 5,000 businesses between 11 November and 9 December, showed that just 49% of firms expect their turnover to increase over the next 12 months, down from 56% in the third quarter and the lowest figure since the aftermath of the mini budget in late-2022.

Just two fifths of firms expect their profits to increase over the next year, down from 48% in the third quarter.

"The worrying reverberations of the Budget are clear to see in our survey data. Businesses confidence has slumped in a pressure cooker of rising costs and taxes," said Shevaun Haviland, director general of the BCC.

"Firms of all shapes and sizes are telling us the national insurance hike is particularly damaging. Businesses are already cutting back on investment and say they will have to put up prices in the coming months."

In equity markets, broker notes were having a big impact amid a dearth of corporate news.

Rolls-Royce was knocked lower by a downgrade to 'neutral' from 'buy' at Citi on valuation grounds.

"Following a strong recovery from the depths of Covid, we believe Rolls-Royce shares are now approaching what we consider to be current fair value," the bank said. "We have increased our target price to 641p, leaving some upside, but insufficient to remain buyers."

Unilever fell after a downgrade to 'underperform' from 'sector perform' at RBC Capital Markets, which slashed the price target to 4,000p from 4,800p.

Barratt Redrow was among the gainers after an upgrade to 'buy' at Redburn, while Flutter and Entain rose as Citi said they were among its top picks in the sector for 2025.

B&M European Value also rallied as Citi said that it and Tesco were its top buy-rated picks in sector. "We expect B&M to benefit from its compelling price offer in the context of customers increasingly shopping around as grocery inflation accelerates," it said.

Experian pushed higher after an upgrade to 'outperform' at RBC Capital Markets.

Market Movers

FTSE 100 (UKX) 8,229.63 0.07% FTSE 250 (MCX) 20,690.49 0.48% techMARK (TASX) 4,626.13 0.35%

FTSE 100 - Risers

JD Sports Fashion (JD.) 99.56p 5.73% Intermediate Capital Group (ICG) 2,124.00p 3.41% Antofagasta (ANTO) 1,637.50p 2.92% Diploma (DPLM) 4,312.00p 2.23% Anglo American (AAL) 2,397.00p 2.15% Barratt Redrow (BTRW) 429.50p 2.14% Spirax Group (SPX) 6,815.00p 1.94% Glencore (GLEN) 368.50p 1.91% Prudential (PRU) 636.80p 1.89% Standard Chartered (STAN) 1,007.00p 1.82%

FTSE 100 - Fallers

Rolls-Royce Holdings (RR.) 568.40p -2.84% WPP (WPP) 791.80p -2.73% Smurfit Westrock (DI) (SWR) 4,214.00p -2.36% Unilever (ULVR) 4,465.00p -2.10% easyJet (EZJ) 532.00p -1.55% International Consolidated Airlines Group SA (CDI) (IAG) 295.20p -1.24% Reckitt Benckiser Group (RKT) 4,814.00p -1.13% InterContinental Hotels Group (IHG) 9,728.00p -1.10% British American Tobacco (BATS) 2,941.00p -1.08% Marks & Spencer Group (MKS) 386.50p -1.02%

FTSE 250 - Risers

Ferrexpo (FXPO) 113.00p 7.62% Oxford Nanopore Technologies (ONT) 138.00p 5.34% B&M European Value Retail S.A. (DI) (BME) 374.50p 4.06% Watches of Switzerland Group (WOSG) 552.00p 4.05% Bytes Technology Group (BYIT) 435.80p 3.91% Spectris (SXS) 2,548.00p 3.83% Kainos Group (KNOS) 801.00p 3.76% Future (FUTR) 973.00p 3.13% Aston Martin Lagonda Global Holdings (AML) 108.60p 3.04% Johnson Matthey (JMAT) 1,345.00p 2.52%

FTSE 250 - Fallers

Raspberry PI Holdings (RPI) 617.50p -5.51% Hochschild Mining (HOC) 215.50p -3.36% Diversified Energy Company (DEC) 1,352.00p -2.94% Bridgepoint Group (Reg S) (BPT) 355.20p -2.04% Energean (ENOG) 1,055.00p -1.95% North Atlantic Smaller Companies Inv Trust (NAS) 3,610.00p -1.90% Chemring Group (CHG) 327.00p -1.80% Deliveroo Class (ROO) 137.30p -1.65% Baillie Gifford Japan Trust (BGFD) 707.00p -1.53% JPMorgan Indian Investment Trust (JII) 1,054.00p -1.50%