UK Inflation Stickiness, BoE Policy, and Impacts on FTSE 100 & UK Assets

I. Macroeconomic Background: Latest Picture of December PMI and Inflation Stickiness

• December PMI Signals and Price Pressures (Web Search/News):
  • Reports on UK December 2025 PMI indicate overall weak business activity but rising or sticky price pressures, suggesting the inflation cooling process may be non-linear [1][2].
  • Specific details: Different data sources show a pattern where “services/composite PMI slowed within the expansion range, but input/output price sub-indices rose higher”, indicating cost and pricing stickiness persist despite weak demand.
• Comparison Between Inflation Data and PMI (Web Search):
  • November CPI unexpectedly fell to 3.2%, but strong PMI price sub-indices suggest “a single-month decline ≠ sustained fall”, so the market remains vigilant about 2026 inflation stickiness [2][3].
• Employment and Wage Environment (Web Search):
  • Recent job vacancies declined consecutively, but wage growth accelerates, increasing marginal risk of a wage-price spiral and supporting the “inflation stickiness” narrative [1].

II. Interaction Between BoE’s Policy Path and Inflation Stickiness

• December 2025 Policy Resolution (Web Search):
  • BoE cut the benchmark rate from 4.00% to 3.75% with a 5-4 vote, but post-meeting wording was cautious, emphasizing slower rate cut pace and warning of sticky inflation [2].
• Market Revision of the Path (Web Search):
  • After the resolution, 2026 rate cut expectations were revised down, pricing in more “slower cuts or pauses”; some institutions warned of potential tightening if inflation stays sticky [1][2].
• Relative Position Among G7 (Web Search):
  • UK inflation remains the highest in G7, a key reason for BoE’s prudence [2].

III. Impact on FTSE 100 Index (Technical + Macro Logic)

• Technical Performance (Broker API/Tools) [0]:
  • Index level (USD): ~10053.34; YTD return: ~+21.71%.
  • Moving averages: Current price is ~+2.44%, +3.20%, +10.20% above 20-day/50-day/200-day averages; medium/long-term trends are strong.
  • Volatility: 20-day volatility ~0.50%, mild short-term fluctuations.
  • Period returns (1/3/6 months): ~+4.00%, +6.64%, +12.04% respectively.
• Valuation Implications of Inflation Stickiness & Policy Tightening:
  • Upside risk: Sticky inflation pushing BoE to “higher for longer” may suppress valuations, especially rate-sensitive sectors (real estate, high-leverage consumption), putting temporary correction pressure on the index.
  • Structural impact: FTSE 100 has high weights in energy, resources, pharma, and multinational consumption—some with strong USD revenue and defensive attributes in “high rate, strong USD” environments. Domestic-demand-sensitive sectors (retail, construction) face dual pressure from real income and rates.
  • External environment: Rate differentials vs. EU/US affect cross-border flows and volatility [1][2][3].

IV. GBP Asset Valuation & Exchange Rate Performance

• Spot Rate & Recent Trends (Web Search):
  • GBP/USD traded 1.33-1.34 around BoE resolution; unexpected inflation drop briefly pressured the pound [2][3].
  • Sticky inflation may support the pound阶段性, but weak growth limits upside [1][2].
• Asset-Level Impact:
  • Fixed income: Higher rates push up bond yields, pressuring duration-sensitive portfolios; slowing growth may widen credit spreads.
  • Equities: Stronger pound hurts export profits but lowers import costs; weaker pound benefits overseas-exposed stocks but raises imported inflation.
  • Real estate & high-yield assets: High rates pressure valuations; returns rely on coupons/rents; refinancing cost sensitivity rises.

V. Impact on UK Bond Yields

• Inflation Stickiness & Yield Curve (Macro Logic + Web Clues):
  • Sticky inflation may lead markets to price higher terminal rates, pushing up short-to-medium yields [1][2].
  • Fiscal/budget impacts may add inflation expectation pressure [2].
• Maturity Differentiation:
  • Short-end: Directly affected by policy—slower cuts may raise yields quickly.
  • Long-end: Driven by fiscal, inflation, and global sentiment; sticky inflation may keep yields high (bear steepening).
  • Investor behavior: Defend via shorter duration, higher credit quality, and floating-rate exposure.

VI. Investor Scenarios & Strategy Points

• Base Scenario (Sticky but Controllable):
  • BoE adopts “slow cuts + flexible wait-and-see”; pound ranges; short-end yields stay above pre-pandemic levels; equities show structural分化 (resources/defensive leaders outperform).
• Upside Risk (Inflation Rebound):
  • Strong PMI prices/wage growth lead BoE to pause cuts; pound strengthens; yields rise; high-leverage/domestic sectors under pressure; equities correct.
• Downside Risk (Growth Slowdown):
  • Weak growth offsets inflation stickiness; BoE cuts faster; yields flatten (bull flattening); pound weakens; export/resource stocks benefit.

VII. Data & Time Boundaries

• Time anchor: January 6, 2026; data based on late 2025/early 2026.
• Sources:
  • FTSE 100 technicals: Broker API [0].
  • PMI, BoE policy, exchange rates: Web searches [1][2][3].
  • No bond yield estimates (tool not called).

VIII. Key Data Overview

• FTSE 100 Technicals [0]:
  • Level: ~10053.34; YTD: +21.71%；Above 20/50/200-day averages: +2.44%/+3.20%/+10.20%；20-day volatility: ~0.50%.
• Inflation/PMI [1][2]:
  • November CPI:3.2%；December PMI price pressures remain strong.
• BoE Policy [2]:
  • Cut rates to3.75%；warned of slower cuts.
• Pound [2][3]:
  • GBP/USD:1.33-1.34；direction depends on rates/growth.

References
[0] Jinling API Data
[1] Adzuna Reports - https://hk.finance.yahoo.com/news/
[2] Reuters - https://www.reuters.com/world/uk/bank-england-cuts-rates-after-tight-vote-signals-caution-about-further-moves-2025-12-18/
[3] CNBC - https://www.cnbc.com/2025/12/17/sterling-drops-as-inflation-cements-boe-cut-expectations-dollar-up-before-us-inflation.html

Note: No bond yield estimates (tool not called). Supplement with bond tools for accuracy.