The UK Index of Services (3M/3M) was 0% in December. This was below the expected 0.2%.
The index tracks short-term changes in services output. It compares the latest three months with the previous three months. A 0% result means there was no growth over that period.
The 0.2% forecast suggested a small increase in activity. Instead, the flat reading shows services growth was weaker than expected in December.
The 0% growth rate for the three months to December 2025 is a clear warning sign. It suggests the economy entered the new year with little momentum. Missing expectations also points to underlying weakness that markets may not have fully priced in.
This stagnation, together with January 2026 inflation falling to 2.1%, makes a Bank of England rate cut more likely. Markets are now pricing in a possible cut by early summer. That is a big change from late 2025. As a result, we should expect the British Pound to weaken against major currencies such as the US Dollar and the Euro.
For UK equities, this outlook is negative, especially for the domestically focused FTSE 250. We should consider buying put options on the index to hedge against a possible downturn as earnings forecasts are cut. In the past, sharp slowdowns in services have often come before weaker stock markets, including during parts of the late 2010s.
In currency markets, the easiest move for Sterling still looks lower. Interest in GBP/USD put options expiring in April and May is rising. This suggests traders are positioning for a drop. Weak retail sales data for January has added to the bearish view.
Overall, this level of uncertainty often leads to higher volatility. We can use derivatives to position for larger price swings in UK assets over the next few weeks. One approach is to buy straddles on key services-sector stocks, which may move sharply after new economic data is released.
here to set up a live account on VT Markets now
