Europe close: Stocks higher as investors pore over UK Budget

26th Nov 2025 16:33

(Sharecast News) - European equities rose on Wednesday as investors increased bets on a US interest rate cut next month and assessed the UK government's heavily trailed Budget, which set out £26bn in tax rises to stabilise public finances.

The Stoxx 600 gained 1.09%.

Germany's DAX advanced 1.11% to 23,726.22, France's CAC 40 rose 0.88% to 8,096.43 and London's FTSE 100 added 0.85% to 9,691.58.

"Stocks climbed while the dollar took a hit as weak US consumer data and the emergence of a pro-rate-cutting candidate as the likely Federal Reserve chairman fuelled expectations of an imminent reduction in interest rates," said Patrick Munnelly, market strategy partner at TickMill.

"Asian markets surged by 1.4%, buoyed by Wall Street's rally, and the positive momentum seemed set to continue, with S&P 500 and European futures pointing to further gains."

Sentiment was further supported by signs of progress in talks aimed at ending the war in Ukraine.

Defence stocks continued to climb even as Russia persisted with strikes on civilian areas, while US president Donald Trump said a peace deal was "very close," with senior US officials expected to hold talks in Moscow and Kyiv this week.

Munnelly noted that "oil prices remained stable after hitting their lowest level in a month, as news of a peace agreement in Ukraine offered some stability to energy markets."

UK Budget dominates headlines as Reeves lays out tax rises

The UK Budget dominated the backdrop on this side of the pond.

Chancellor Rachel Reeves set out a package of tax increases, including freezing income tax thresholds to 2031, a levy on homes valued above £2m and higher taxes on dividends, savings and property income.

Gaming and online betting duties were sharply increased, while bingo duty would be abolished from next April.

The Office for Budget Responsibility accidentally published its economic outlook before Reeves' speech, prompting the chancellor to call the early release "deeply disappointing and a serious error on their part."

The OBR said Reeves would more than double fiscal headroom to £22bn by the end of the Parliament, although it cut its 2026 growth forecast to 1.4% from 1.9%.

Inflation was expected to end the year at 3.5%, with the long-term forecast still anchored at 2%.

Market reaction to the UK's plans was broadly positive.

Joshua Mahony, chief market analyst at Scope Markets, said: "The decision to more than double the fiscal headroom provides greater confidence that the government won't be back in the same tight fiscal position next time around.

"Ultimately this has a feel of a 'sell the rumour, buy the fact' event, with markets responding to a budget that doubles fiscal headroom and imposing measures that are perhaps less onerous than some had feared."

Tom Selby, director of public policy at AJ Bell, added: "There is still significant pain to be felt by millions of households, however."

Rain Newton-Smith, CBI chief executive, warned that a "scattergun approach to tax risks leaving the economy stuck in neutral."

UK inflation expectations also eased - a YouGov survey for Citi showed year-ahead expectations falling to 3.7% from 4.2%, the lowest since January, strengthening the case for further Bank of England rate cuts.

Longer-term expectations edged down to 3.9%.

Citi said the data was "clearly dovish" but warned against "over-interpreting a single month" of figures.

In the US, initial jobless claims fell by 6,000 to 216,000 last week, below expectations, while durable goods orders rose 0.5% in September, beating forecasts as defence aircraft demand surged.

The Reserve Bank of New Zealand meanwhile cut interest rates by 25 basis points to 2.25%, but signalled its easing cycle was nearing an end, saying the current stance should support a gradual recovery.

Defence stocks, UK banks in the green

Among stocks, European defence groups traded higher, led by Germany's Rheinmetall.

Adecco fell after the recruiter maintained margin targets, prompting concerns that artificial intelligence could squeeze dividends.

UK housebuilders weakened after Reeves confirmed a new council tax charge on properties worth over £2m, with Persimmon, Taylor Wimpey and Berkeley Group all lower.

Barratt Redrow recovered initial losses before turning negative again into the close.

Banks including Barclays, NatWest and Lloyds ended higher after sharp intraday swings linked to Budget expectations.

"The FTSE 100 was lifted by miners and technology names amid growing hopes for a US interest rate cut and a new contender to dethrone Nvidia as AI king," said Russ Mould, investment director at AJ Bell.

"Also propping up the index was a rally in the UK banking sector as investors hoped Rachel Reeves would find the magic solution to drive economic growth."

Novo Nordisk climbed after US authorities confirmed a new negotiated Medicare price for its GLP-1 drugs Ozempic and Wegovy from 2027, setting the price for patients at $274, a 71% reduction from current list levels.

Reporting by Josh White for Sharecast.com.