London muted as UK economy beats growth forecasts

NatWest (NWG.L), Barclays (BARC.L), Nationwide and Halifax have all cut mortgage rates this week, fuelling expectations of a “booming market” in 2026.

The average rate for a two-year fixed mortgage remained at 4.48% this week, according to data from Uswitch. The average five-year fixed deal came in at 5%, a drop from the previous 5.04%. Those are the average rates across all lenders for a 75% loan-to-value (LTV) mortgage, meaning buyers need to have at least 25% of the purchase price as a down payment.

The Bank of England cut interest rates to 3.75% from 4% last month, taking borrowing costs to their lowest level in almost three years.

The cut in borrowing costs from major lenders comes as financial information service Moneyfacts said “expectations are high for a booming market in 2026”.

Data from the group showed the number of mortgage products on offer has climbed to its highest level in 18 years, while looser lending requirements are providing greater support for people buying their first home.

Mortgage rates have fallen over the past year, although wider global and economic uncertainty still threatens to slow or reverse further improvements. Some borrowers also continue to face higher costs when their existing deals come to an end. More than eight in 10 mortgage customers are on fixed-rate deals.

Under these arrangements, the interest rate remains unchanged until the deal expires, typically after two or five years, when a new product is selected.

In August last year, the average two-year fixed mortgage rate fell below 5% for the first time since the mini budget announced by former prime minister Liz Truss in September 2022.

Rates have declined further since then, with some additional movement in recent days, and Moneyfacts has forecast more falls early this year.

The UK economy will grow at a slower pace this year than in 2025 as the construction sector struggles and wage growth weakens, a Dutch bank has warned.

ING said “investment confidence is low” as the ONS figures showed output in construction shrank by 1.3% in November, leaving it 3% lower than it was in July.

UK economist James Smith said:

He added that it was easy to blame the autumn budget for the construction slowdown but added he was concerned as the sector “should in theory be benefiting the most from lower interest rates”.

He warned that while inflation was on track to fall, wage growth was also declining, meaning “disposable income growth will probably be flat”.

In addition government spending “will be less of a tailwind” as departmental budgets are kept in check to rein in the budget deficit.

Germany’s Federal Statistics Office reported this morning that German gross domestic product (GDP) grew by 0.2% in the final quarter of last year and also increased by 0.2% over the full-year 2025.

This was the first annual growth since 2022, following contractions in the last two years.

Ruth Brand, president of the Federal Statistical Office, said:

Household consumption and government spending both added to growth last year, but investment fell.

This is “finally, some positive news” for the German economy, says Carsten Brzeski, global head of macro at ING.

Brzeski said:

Bitcoin (BTC-USD) extended its recent gains on Thursday, rising roughly 1.4% over the past 24 hours and 6.7% on the week to trade near $96,500 (£71,796). The move follows a period of unusually tight trading between $88,000 and $91,000 to start the year, and coincides with renewed inflows into US spot crypto exchange-traded funds (ETFs).

Data from SoSoValue shows US spot bitcoin ETFs attracted $884m in net inflows on Wednesday, while ether (ETH-USD) and XRP (XRP-USD) spot ETFs posted $175m and $10.6m of inflows respectively. BlackRock’s (BLK) IBIT and Fidelity’s FBTC captured the bulk of bitcoin ETF demand, drawing roughly $648m and $125m.

The breadth of inflows suggests institutional demand for major tokens is firming after early-year volatility, with ETF activity providing a potential price floor as long as macro conditions remain stable.

“Bitcoin’s renewed push toward the $100,000 level is not happening in isolation, it’s closely tied to the same macro forces lifting gold and other hard assets,” SynFutures CEO Rachel Lin told Yahoo Finance.

“With persistent concerns around currency debasement and fiscal discipline, investors are once again looking for stores of value that sit outside the traditional financial system,” Lin said.

She described the current backdrop as “goldilocks,” citing resilient US growth, stabilising inflation, and easing liquidity pressures that are enabling capital to return to both defensive and risk assets.

Read the full article here

South East Water is under investigation by the industry watchdog after repeated outages since November have left tens of thousands of households and businesses without supply across Kent and Sussex.

Ofwat said it had launched a probe into whether the supplier had breached its licence condition by failing to comply with customer service standards obligations and offered appropriate support to affected customers during supply interruptions.

The latest incident has seen thousands of properties in Kent and Sussex left without drinking water for the sixth day running, with South East Water (SEW) blaming the outage on Storm Goretti causing burst pipes and power cuts.

As of Thursday morning, water had been restored to 16,500 properties in East Grinstead, but 8,500 customers in Kent remain without water, SEW have said.

Around 6,500 of those still affected are in Tunbridge Wells on a “booster system”, which the company said it now has a “new recovery plan” for.

Tunbridge Wells also suffered a sustained outage in November and December, with around 24,000 properties in and around the Kent town left without drinkable water for almost two weeks.

Ofwat has already launched an investigation into SEW’s supply resilience, looking at whether it has failed to develop and maintain an efficient water supply systems, which is ongoing.

Lynn Parker, Ofwat senior director for enforcement, said:

A poll of UK surveyors has found that confidence is returning to the UK housing market, with expectations for sales and prices turning higher in December.

The latest RICS UK Residential Market Survey found that sales expectations over the next three months had hit the highest level since October 2024.

Looking further ahead, a net balance of +34% of respondents expected sales volumes to rise over the next year, more than double the level seen in November.

Surveyors point to easing interest rate expectations and the clearing of budget-related uncertainty as key drivers behind the turnaround in mood.

But, RICS’s measure of buyer demand and agreed sales remained in negative territory during the month.

Tarrant Parsons, RICS’s head of market research & analysis, said:

Today’s ONS data means an interest rate cut from the Bank of England next month is less likely. Traders are betting there is a 6% chance of a reduction in borrowing costs in February, down from 7% on Wednesday.

Money market pricing indicates policymakers are expected to cut rates in April, although the chances of this were reduced from 93% yesterday to 91% today.

Suren Thiru, economics director at ICAEW, said:

Meanwhile, Andrew Wishart, senior UK economist at Berenberg, said:

Today’s GDP report also revealed that the UK economy grew by 0.1% over the three months to November.

Economists welcomed the news, with Ben Caswell, senior economist at the National Institute of Economic and Social Research, suspecting that Rachel Reeves’s commitment to expanding her budget fiscal headroom helped lift confidence.

He said:

The UK economy returned to growth in November, despite uncertainty in the run up to chancellor Rachel Reeves delivering the autumn budget.

The UK’s gross domestic product (GDP) is estimated to have grown by 0.3% in November, according to Office for National Statistics (ONS) data released on Thursday. This was better than forecasts for 0.1% growth and followed an unrevised fall of 0.1% in October.

Services output increased by 0.3% in November and production grew by 1.1%, though construction output fell by 1.3%.

In the three months to November, the ONS data showed that UK GDP grew by 0.1%, after showing no growth in the previous three months, which was revised up from a fall of 0.1%.

Liz McKeown, director of economic statistics at the ONS, said:

Stocks in Asia were mixed overnight, but tech ‍shares were met with more selling. The Nikkei (^N225) slipped 0.4% on the day in Japan, where it looks increasingly as though prime minister Takaichi is going to call a snap election. That hasn’t been officially confirmed, but Hirofumi Yoshimura, who is the leader of the Japan Innovation Party, said that Takaichi had told colleagues that she’d be dissolving the lower house soon after it reconvenes on 23 January.

Meanwhile the Hang Seng (^HSI) fell 0.3% in Hong Kong and the Shanghai Composite (000001.SS) was also 0.3% down by the end of the session.

In South Korea, the Kospi (^KS11) added 1.6% on the day, on track for another record high this morning.

Currencies paused for breath after the yen dropped to its weakest point since July 2024 against the US dollar overnight and then bounced back sharply amid warnings of possible intervention by Japanese authorities.

Japanese bond yields eased back from record peaks following a spike driven by speculation – which was later confirmed – that the government will call snap elections, a scenario that is expected to lead to bigger fiscal stimulus.

Across the pond, Wall Street declined last night after fourth-quarter results from some US banks, including Bank of America (BAC) and Wells Fargo (WFC), disappointed investors.

The S&P 500 (^GSPC) fell 0.5% during the session thanks to a slump for tech stocks, with the Magnificent 7 down 1.56%, in contrast to most of the S&P’s constituents which rose yesterday, with 318 moving higher.

The tech-heavy Nasdaq (^IXIC) was 1% lower at the closing bell and the Dow Jones (^DJI) lost 0.1%.

Good morning, and welcome back to our markets live blog. As usual we will be taking a deep dive into what’s moving markets, and what’s happening across the global economy.

Looking at the day ahead, data releases include the UK GDP and Euro Area industrial production for November. Then in the US, we’ll get the weekly initial jobless claims, the Empire State manufacturing survey for January, and the Philadelphia Fed’s business outlook for January.

From central banks, the ECB will publish their Economic Bulletin, we’ll hear from ECB Vice President de Guindos, the ECB’s Panetta, and the Fed’s Bostic, Barr, Barkin and Schmid. Finally, earnings releases include Goldman Sachs, Morgan Stanley, and BlackRock.

Here’s a snapshot of what’s on the agenda:

7am: Trading updates: Taylor Wimpey, Dunelm, Safestore, Ashmore, Rathbones, Oxford Instruments, Hostelworld, Robert Walters, Fuller, Smith & Turner, CAB Payments, Brooks Macdonald

7am: UK GDP report for November

7am: UK trade report for November

9am: German full year GDP report

1.30pm: US initial jobless claims report