Weekly Briefing: A Clearer Path to a Christmas Rate Cut, Foreign Buyers Lift the FTSE, Savers Gain Protection, Fed Faces a Jobs Data & More

In this week’s briefing, the mood across markets feels oddly divided. Inflation’s steady drift down to 3.6% has given the Bank of England the clearest runway yet for a December rate cut. Yet while domestic investors continue to pull record sums from UK equities, foreign buyers are quietly powering a FTSE 100 rally that looks completely out of sync with the more cautious tone at home. Add in a sharp drop in consumer confidence, a significant rise in FSCS protection, and a wave of landlords selling up ahead of possible tax changes, and there's a lot to talk about this week.

Over in the US, a messy jobs report has left the Federal Reserve divided heading into its final meeting of the year. Taken together, this week’s stories show an environment where sentiment, policy and behaviour are moving at different speeds - and where December could prove more pivotal than usual.

Read on for the full picture. 

Inflation Eases and the Bank of England Edges Toward a Christmas Rate Cut

Inflation slipping to 3.6% in October feels like the next clear sign that the Bank of England may be ready to act again. A fall from September’s 3.8% was expected, but the underlying drivers - softer energy costs and cheaper hotel prices - suggest something more durable. Services inflation also eased to 4.5%, undershooting economists’ expectations and giving rate-setters a little extra breathing room.

The timing matters. Rachel Reeves is preparing a Budget that is widely expected to raise taxes, just as the economy grew only 0.1% in the third quarter and unemployment sits at 5%. A weaker backdrop normally makes central banks cautious, but the Monetary Policy Committee has already hinted that December could be the moment it starts cutting rates from 4%.

Markets certainly think so. Traders now assign an 85% probability to a quarter-point cut next month, and gilt yields barely moved after the announcement - a sign investors had been prepared for this reading. Core inflation also nudged down to 3.4%, and although food and drinks inflation picked up slightly, the broader picture is one of easing pressure.

For Andrew Bailey, this is a shift in tone after months of dividing the MPC. Growth has slowed to the weakest pace since late 2023, yet inflation has remained sticky enough to prevent decisive moves. With services inflation now cooling, the data finally aligns in a way that offers a path forward.

The final word comes from Deutsche Bank’s Sanjay Raja, who summed up the MPC mood best: “The figures provide a clear path for a Christmas rate cut,” he said, adding that Andrew Bailey “will feel more confident about cutting”.

UK Investors Retreat as Foreign Buyers Drive a Surprising FTSE 100 Rally

While inflation guides the Bank of England, the stock market is telling a very different story. Domestic investors have pulled £26bn from UK equities so far this year - a record pace - even as the FTSE 100 has surged more than 16%, outperforming the S&P 500 and European benchmarks. It’s one of those strange moments where the global view of Britain looks more optimistic than the domestic one.

The big driver seems to be anxiety ahead of the likely tax-raising Budget. UK funds saw £3.4bn in outflows in October alone, as investors increased cash holdings and tried to reduce uncertainty. Months of speculation around what Reeves might change has added to the sense of caution. As one analyst put it, when the mood turns dark, people “take a bit of money out”.

Foreign investors, meanwhile, have quietly added around £15bn of UK exposure - not necessarily because they love the UK, but because they want diversification away from the AI-driven boom in the US. With the FTSE 100 trading at just 17.4 times earnings, compared with 27.3 times on the S&P 500, London, in comparison. looks cheap and defensive.

It’s also telling that the FTSE 100 is increasingly disconnected from the UK economy itself. More than three-quarters of its revenues come from overseas, and sectors like banking, mining and defence have all rallied strongly this year. The mid-cap FTSE 250 - a better barometer of domestic conditions - is up only 3.8%, a far weaker showing.

The longer-term issue is structural. UK stocks now make up just 3.2% of the MSCI All World Index, down from 6.9% a decade ago. Pension funds have steadily reduced their allocation to domestic equities, and the flow of passive global money simply bypasses London as a result. Reversing that trend is one of the government’s biggest capital-markets challenges.

And the concerns from strategists are clear. As Goldman Sachs’ Sharon Bell put it: “UK investors are not selling UK equities to buy foreign equities - they are reducing equity exposure altogether… any increase in equity allocation will flow to the UK to a high degree.”

Consumer Nerves, Rising Protections, and a Landlord Exodus

Next, a mixed section looking into 3 smaller but equally relevant stories that we wanted to share. On the consumer front, unsurprisingly, confidence has fallen sharply following weeks of Budget speculation. Expectations for the economy over the next three months dropped to –44, down from –35 in October, and households are preparing for tighter finances in the run-up to Christmas.

Against this backdrop, the rise in FSCS deposit protection from £85,000 to £120,000 is a bit of good news. Coming into force in December, it’s the largest increase since 2017 and is designed to keep pace with inflation and maintain trust in the banking system. It also pushes the temporary high-balance cap up to £1.4m for six months, offering additional reassurance around events such as property sales. Regulators were clear that the boost is about stability, not stimulus.

Stability is harder to find in the property market. Landlords appear to be selling up in record numbers, with 18% of all properties listed for sale in September previously available to rent - the highest level since 2010. Concerns about a potential rise in capital gains tax have accelerated sales, following years of tax changes that have already eaten into profitability. Meanwhile, those staying in the market are charging record rents, with average monthly prices hitting £1,344 outside London and £2,694 in the capital.

This tension - rising protections for savers on one hand and heightened risks in property on the other - reinforces the uncertainty shaping consumer behaviour noted earlier. The Budget’s direction is looming over decisions everywhere from rental listings to household spending to broader investment flows.

A Mixed US Jobs Report Sets Up a Heated Federal Reserve Debate

Across the Atlantic, the US is grappling with its own blend of slowing momentum and surprising resilience - a pattern that mirrors some of the dilemmas facing the Bank of England, though in a different context. The US economy added 119,000 jobs in September, far above the 50,000 forecast, yet unemployment rose to 4.4%, the highest in four years. It’s the kind of contradictory data that complicates a central bank’s final decisions of the year.

This report is also the first major economic release since a record-breaking government shutdown delayed data collection. That disruption means some October figures will be missing until after the Fed meets in December, leaving policymakers without their usual set of indicators.

The labour market clearly isn’t as strong as it looks at first glance. Downward revisions wiped out 33,000 jobs from earlier months, and hiring from May to August now totals just 74,000. Layoff warnings are rising too, with more than 39,000 notices issued across 21 states in October - one of the highest levels since 2006. For doves, these signs point toward cooling conditions that warrant another rate cut.

But hawks can point to the stronger-than-expected headline hiring figure and the risk that cutting rates too quickly might re-ignite inflation. The Fed has already reduced rates twice this year, but uncertainty around the shutdown and conflicting market signals mean December’s decision remains wide open.

Markets reacted cautiously. Treasury yields dipped, the dollar softened slightly, and tech stocks led a modest rally thanks to strong earnings from Nvidia. But underlying questions about the true state of the labour market remain unanswered until the next report - which won’t arrive in time to influence the Fed’s December meeting.

And as JPMorgan’s Patrick Locke neatly summarised: “It’s not easy to know what to make of this report, with conflicting directional moves across underlying indicators… There’s no smoking gun to lock in a December decision.”

Final Note

This week lays bare just how many moving parts are shaping the end-of-year outlook.

The Bank of England now has the data it’s been waiting for, and a Christmas rate cut feels very likely - but the relief may be short-lived if the Chancellor’s Budget tightens conditions elsewhere. At the same time, the gulf between domestic pessimism and foreign appetite for UK assets highlights an ongoing identity crisis in the UK market, one that won’t be solved by sentiment alone. Rising depositor protections offers some reassurance, yet the surge in landlord sales and the drop in consumer confidence show how sensitive behaviour has become to policy signals. And over in the US, a conflicted labour market sets the stage for another finely balanced decision from the Fed.

Well, after being the phrase that’s cropped up in almost every briefing for months, the “October” Budget will finally take centre stage in next week’s update - and we’ll be taking a closer look at everything it reveals.