London's FTSE 100 edged lower on Monday, retreating 0.2% after marking its strongest week in five on Friday. The mid-cap FTSE 250 also declined, shedding 0.3%.

Despite Monday's dip, the FTSE 100 remains poised for its fourth consecutive year of gains, while the FTSE 250 is on track for its second straight yearly rise.

Aerospace and defence stocks led the market downturn, slipping 0.6%. Precious metal miners also declined by 0.6%, pressured by a drop in gold prices. Conversely, home construction and household goods stocks bucked the trend, gaining 0.5%.

Trading volumes are anticipated to be light in the holiday-shortened week. UK markets will close early on Tuesday and remain shut on Wednesday for the New Year celebrations.

Looking ahead, investors face uncertainty in 2025 as Donald Trump prepares to return to the White House, potentially reviving tariff policies that could impact global markets. Additionally, domestic businesses are evaluating the implications of UK Finance Minister Rachel Reeves' budget unveiled in October.

Market participants are also closely monitoring the Bank of England's monetary policy direction. The central bank recently reiterated its cautious approach to monetary easing amid persistent inflationary pressures. In 2024, the Bank of England implemented two interest rate cuts, reducing rates by a total of 50 basis points. Money markets are currently pricing in over 52 basis points of additional cuts for 2025.

As the year concludes, both global and domestic economic policies remain pivotal factors shaping market sentiment in the coming months. Photo by Kaihsu Tai, Wikimedia commons.