UK industrial production fell 0.9% month over month in December. This was weaker than the expected 0% change.
The -0.9% result for December 2025 points to a soft finish to the year for the UK economy. The downside surprise suggests the slowdown we were tracking was sharper than markets had priced in. This supports a more cautious stance on UK-specific assets going into Q1 2026.
This ongoing weakness in industry puts downward pressure on the British Pound. January 2026 data shows headline inflation fell to 2.3%, closer to the Bank of England’s target. That reduces the need to keep interest rates high. As a result, we should consider buying put options on GBP/USD, expecting the Bank may signal a shift toward rate cuts in the coming months.
For UK equities, the outlook is mixed. A weaker pound often helps the FTSE 100, since many of its companies earn revenue overseas and benefit when those earnings are converted back into sterling. In 2023, similar conditions coincided with FTSE 100 outperformance. Call options on the index could be a way to position for this effect.
By contrast, domestically focused firms in the FTSE 250 are more exposed to the slowdown shown in the production data. This is consistent with January 2026 retail sales, which fell 1.5% as consumer spending weakened. Put options on the FTSE 250 would be a practical hedge against this domestic fragility.
The next key catalyst is the preliminary Q4 2025 GDP release, due next week. If it confirms an economic contraction, markets may price in a rate cut by mid-2026 more firmly. That would add support to bearish views on the pound and on UK domestic stocks.
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