European markets presented a mixed picture on Tuesday morning as a wave of new economic data for the start of 2025 was released. The FTSE 100 experienced a downturn following reports of rising grocery price inflation and disappointing retail sales during the crucial “Golden Quarter,” while continental European indices saw modest gains after December inflation figures met expectations.
Table Content:
The UK’s FTSE 100 index fell 0.2% by late morning. Fashion retailers Next and JD Sports were among the top performers, buoyed by positive investor sentiment. Conversely, major supermarket chains Tesco and Sainsbury’s saw their shares decline by approximately 1.8% following the release of underwhelming retail sales data from the British Retail Consortium (BRC). Housebuilding stocks also experienced losses after the release of construction Purchasing Managers’ Index (PMI) data.
In contrast, Germany’s DAX index rose 0.3%, and the CAC 40 in Paris climbed 0.5% following the release of Eurozone inflation data for December, which held steady at 2.4%, aligning with economist forecasts. This marks the third consecutive month of rising inflation in the Eurozone. The pan-European STOXX 600 index also edged up 0.2%, recovering from earlier losses.
UK Retail Sector Under Pressure
The BRC reported that UK retail sales growth for the three months leading up to December, traditionally the busiest shopping period of the year, was a meager 0.4% year-on-year. Food sales growth slowed to 1.7% year-on-year in December, significantly lower than the 6.3% growth recorded in December 2023 and below the three-month and 12-month average growth rates.
Helen Dickinson, CEO of the BRC, warned of potential challenges for the retail sector in 2025, citing projected sales growth of 1.2% falling short of the anticipated 1.8% shop price inflation. This suggests a likely decline in sales volumes, compounded by a £7 billion increase in costs for retailers due to rising National Insurance contributions, a higher National Living Wage, and new packaging levies.
Eurozone Inflation Meets Expectations
Eurozone inflation remained at 2.4% in December, matching market expectations. This figure follows two consecutive months of increasing inflation and comes after the European Central Bank implemented four interest rate cuts since June, bringing the benchmark rate down to 3%. Further rate cuts are anticipated in January. The release of this inflation data contributed to the positive performance of the pan-European STOXX 600.
UK Construction Sector Slows
The latest PMI data from S&P Global revealed a slowdown in the UK construction sector, with the rate of new work expanding at its slowest pace since June 2024. Housebuilders were particularly affected, registering the weakest performance within the construction sector. Despite the slowdown, business optimism has rebounded from the 13-month low observed in November.
Other Market Developments
Other notable market developments included Next raising its profit forecasts, leading to a surge in its share price. Gold prices experienced a slight uptick due to a weaker dollar and ongoing trade tariff uncertainties.
In conclusion, the start of 2025 brought mixed fortunes for European markets. While continental indices responded positively to in-line inflation figures, the UK market grappled with concerns over rising inflation, sluggish retail sales, and a slowdown in the construction sector. These early indicators suggest a potentially challenging year ahead for the UK economy. The release of key economic data, such as the December nonfarm-payrolls report in the US later this week, will provide further insights into the global economic outlook.
