London close: FTSE recovers from earlier losses to end up as housebuilders rally

(Sharecast News) - London stocks recovered from earlier losses to end up on Friday as comments from a Fed official sparked hopes of a US rate cut soon. The FTSE 100 closed up 0.1% at 9,539.71, having traded lower for most of the day as markets were rattled yet again by worries about AI valuations and US growth.

Sentiment got a boost, however, and US stocks rallied after the head of the Federal Reserve Bank of New York said he sees scope for shortly reducing interest rates due to weakness in the labour market.

In a speech about inflation-targeting at a conference in Santiago, Chile, John Williams refrained from predicting when a rate cut would be appropriate, but said that he would support the move "in the near term".

"I still see room for a further adjustment in the near term to the target range for the federal-funds rate to move the stance of policy closer to the range of neutral," Williams said.

The comments came just days after minutes from last month's Federal Open Market Committee (FOMC) meeting were released, showing that policymakers were divided over the future path of monetary policy.

"Looking ahead, it is imperative to restore inflation to our 2% longer-run goal on a sustained basis. It is equally important to do so without creating undue risks to our maximum employment goal," Williams said.

Axel Rudolph, senior technical analyst at IG, said expectations of a December rate cut from the Fed increased from 41% to 73% after Williams' comments.

On home shores, the latest reading on the services sector showed growth eased in November as decisions were put on hold in the run-up to the Budget, raising expectations of a rate cut from the Bank of England next month.

The S&P Global flash UK PMI composite output index fell to 50.5 from 52.2 in October, coming in below expectations for a reading of 51.8. A reading above 50 indicates expansion, while a reading below signals contraction.

The services PMI fell to 50.5 in November from 52.3 in October, while the manufacturing PMI ticked up to 50.2 from 49.7.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: "November's flash PMI surveys brought disappointing news on the UK economy. Economic growth has stalled, job losses have accelerated, and business confidence has deteriorated.

"The PMI is broadly consistent with no change in GDP in November and a meagre 0.1% quarterly pace of growth so far in the fourth quarter.

"Some of this malaise has been blamed on paused spending decisions ahead of the Autumn Budget, but there's a real chance this pause may turn into a downturn. The drop in confidence about the year ahead reflects growing concerns that business conditions will remain tough in the coming months, largely linked to speculation that further demand-dampening measures will be introduced in the Budget."

Elsewhere, figures from the Office for National Statistics showed the government borrowed more than expected in October.

Borrowing came in at £17.4bn, down £1.8bn on October 2024 but above expectations of £15bn. It was also slightly higher than the Office for Budget Responsibility's forecast of £14.4bn and marked the third-highest October borrowing since monthly records began in 1993, after 2024 and 2020.

ONS chief economist Grant Fitzner said: "Borrowing this October was down on the same month last year, although it was still the third-highest October figure on record in cash terms.

"While spending on public services and benefits were both up on October last year, this was more than offset by increased receipts from taxes and National Insurance contributions."

Total borrowing in the year so far was £116.8bn, up £9bn on the same period a year earlier and the second-highest figure for April to October on record after 2020.

Separate data from the ONS showed that retail sales unexpectedly fell in October, as consumers held back on spending ahead of the Black Friday sales.

In equity markets, housebuilders Persimmon, Barratt, Berkeley and Bellway all gained as the services reading raised expectations of an interest rate cut next month.

Unilever advanced following a report the consumer goods giant is considering selling some of its best-known British food brands, including Marmite, as it refocuses on beauty and wellbeing.

Hammerson advanced as it completed the £104.5m purchase of the remaining 50% stake in The Oracle, located in Reading, and lifted its EPRA guidance.

Frasers Group also rose after announcing late on Thursday that it had bought the Braehead Shopping Centre in Glasgow, Scotland's largest retail and leisure destination.

On the downside, GKN Aerospace owner Melrose Industries, engine maker Rolls-Royce and BAE Systems all fell amid reports of a potential peace plan to end the Ukraine war.

Babcock ended higher, however, after it delivered a big jump in profits over the first half ended 30 September, driven by double-digit organic growth in its nuclear division and an improvement in group margins.

Miners were under the cosh as copper prices fell, with Glencore, Antofagasta and Anglo American all down.

Shares in Tullow Oil cratered it said it was engaging in refinancing talks in an attempt to put the business on a "long-term sustainable financial footing", as it revealed that full-year output would be at the low end of guidance and production would fall further next year.

Ithaca Energy tumbled after a downgrade to 'sell' at Goldman Sachs.