Europe close: Stocks higher after week of rate decisions

(Sharecast News) - European shares closed higher on Friday in subdued trading as investors digested a heavy week of central bank decisions and the Bank of Japan's move to lift interest rates to their highest level in three decades. The pan-European Stoxx 600 rose 0.37% to 587.50, with Germany's DAX up 0.37% at 24,288.40, France's CAC 40 gaining 0.01% to 8,151.38 and the UK's FTSE 100 advancing 0.62% to 9,897.42.

Axel Rudolph, senior technical analyst at IG, said that "stock markets around the globe saw another day of strong gains on the back of Thursday's post soft US inflation rally," adding that even weaker data points had failed to dampen risk appetite.

Sentiment was shaped by a packed policy calendar, with monetary decisions on Thursday from the Bank of England, the European Central Bank, Norges Bank and Sweden's Riksbank.

All but the Bank of England kept rates unchanged, while the BoE cut by 25 basis points.

Danni Hewson, head of financial analysis at AJ Bell, said "the knife-edge nature of yesterday's rate decision by the Bank of England is keeping UK stocks in check and stalled the FTSE 100's push towards the 10,000 mark," noting that investors were responding to "the reality that we could be approaching the end of the current rate-cutting cycle."

The ECB upgraded its outlook for euro zone growth, forecasting expansion of up to 1.4% in 2025 and 1.2% in 2026.

Global markets also reacted to the Bank of Japan's unanimous decision on Friday to raise its benchmark rate by a quarter point to around 0.75%, the highest level in 30 years, as policymakers looked to balance rising prices with the need to keep government borrowing costs contained under new prime minister Sanae Takaichi.

Rudolph highlighted that "the Nikkei 225 did particularly well as the BoJ hiked its rates for a second time this year, raising its policy rate to the highest level since 1995."

Bundesbank flags subdued economic progress next year

In Germany, the Bundesbank said it expected "subdued" economic progress in 2026 before growth accelerates in 2027 as government spending and exports gather pace.

President Joachim Nagel said the economy would "make headway again in 2026", with momentum building later in the year as defence and infrastructure spending feeds through and exports recover.

The central bank forecast calendar-adjusted GDP growth of 0.6% in 2026 and 1.3% in 2027, before easing to 1.1% in 2028 as momentum fades, warning that capacity utilisation would be high again and labour market tightness would increase due to skills shortages.

Despite the cautious outlook, Rudolph noted that "even German consumer morale falling close to a two-year low ... couldn't dent investors' enthusiasm."

UK economic data was mixed, as retail sales volumes fell 0.1% month on month in November, undershooting expectations for a 0.4% rise, after an upwardly revised 0.9% decline in October, according to the Office for National Statistics.

Hewson said that "an unexpected drop in retail sales only added to the gloom around the consumer backdrop in the UK," adding that the fading prospect of cheaper borrowing has also weighed on interest-sensitive sectors.

In the three months to November, sales rose 0.6%, below forecasts for a 0.9% increase, despite strong performances from clothing and computer and telecommunications retailers.

The ONS said the Black Friday effect was "slightly weaker than usual", with non-seasonally adjusted sales up 11.9% versus a 4.4% rise in October.

EY Item Club chief economic adviser Matt Swannell cautioned that the data should be treated with scepticism, noting that November readings are often revised down and that it remains difficult to judge the sector's health before December figures are available.

More downbeat signals came from the Confederation of British Industry, whose distributive trades survey showed retail sales fell sharply in December as the outlook "darkened".

The retail sales volume balance dropped to -44 from -32 in November, with sales expected to fall further in January, where the balance slid to -57 from -24.

CBI principal economist Martin Sartorius said weak consumer confidence had weighed on trading ahead of Christmas and warned that expectations have deteriorated to their weakest level in over four years, calling for government action to cut business costs and restore confidence.

UK consumer confidence edged higher but remained subdued, according to GfK, with its headline index rising two points to -19 in December.

All five measures improved, including the major purchase index, which rose to -11 from -15, and expectations for personal finances and the general economic situation over the next year.

GfK consumer insights director Neil Bellamy said the improvement was tempting to interpret as festive cheer but noted that the headline score was unchanged from a year earlier, leaving 2025 as "a year of no progress" amid ongoing cost-of-living pressures and economic uncertainty.

Public finance data meanwhile showed UK government borrowing fell to a four-year low for November but remained above expectations.

Borrowing came in at £11.7bn, down £1.9bn on November 2024 but higher than forecasts for £10bn, as central government tax receipts rose £2.5bn to £63.5bn.

Borrowing for the financial year to November totalled £132.3bn, £10bn higher than a year earlier.

ONS senior statistician Tom Davies said higher tax and National Insurance receipts helped reduce November borrowing.

Hewson said "the impact of government policy choices and u-turns was clearly evident in the latest set of public sector finances," adding that changes to employer National Insurance "helped net the Treasury an additional £3bn in November" while falling inflation pushed borrowing costs to their lowest level for the month in six years.

She warned, however, that "whilst November's borrowing is the lowest since 2021 it's still above where economists had expected it to come in and significantly higher than the OBR had forecast in March."

In the US, consumer sentiment improved modestly in December, with the University of Michigan's index rising to 52.9 from 51.0 in November, though it remained well below 74.0 a year earlier.

Sportswear names in the red on the back of Nike disappointment

Among equities, sportswear names fell after Nike's second-quarter results, which beat estimates but highlighted weakness in China and tariff pressures, sending Nike shares down 10% in after-hours trading.

Hewson said the market was increasingly concerned that "the company's recovery ... is hitting a wall," warning that "the drop in sales in this market is alarming investors despite the company beating expectations overall."

Puma dropped 3.96%, Adidas fell 1.17% and JD Sports Fashion slid 2.36%.

Elsewhere, WH Smith declined 7.01% after reporting a fall in full-year profit before tax and non-underlying items to £108m from £114m and disclosing an FCA investigation linked to accounting failures in its US operations.

On the upside, Ferrari gained 1.7% after Formula 1 team boss Fred Vasseur said the company's 2026 F1 campaign would launch on 23 January.

Reporting by Josh White for Sharecast.com.