London close: Defence plays, gold miners lead stocks higher
By Josh White
Date: Monday 01 Sep 2025
(Sharecast News) - London stocks eked out modest gains on Monday, with strength in defence firms and precious metals miners helping the market to a positive close.
The FTSE 100 index edged up 0.1% to finish at 9,196.34 points, while the FTSE 250 added 0.13% to 21,633.69 points.
In currency markets, sterling advanced 0.27% on the dollar to last trade at $1.3541, as it gained 0.17% against the euro, changing hands at €1.1575.
"European markets enjoyed a decent start to the week, grabbing investors' attention as US markets will be closed later for the Labor Day holiday," said AJ Bell investment director Russ Mould.
"Wall Street was weak last Friday as a key measure of inflation came in higher than expected.
"That negativity weighed on Japan where the Nikkei saw a big drop.
"Hong Kong's Hang Seng index was lifted by major constituent Alibaba which was in demand after revealing strong AI-driven growth."
UK manufacturing activity contracts further
In economic news, UK manufacturing activity contracted for an eleventh consecutive month in August as new orders slumped at one of the fastest rates in two years, according to S&P Global data released earlier.
The manufacturing PMI fell to 47.0 from July's six-month high of 48.0, staying well below the 50 mark separating growth from contraction.
S&P's Rob Dobson said production volumes showed "resilience" despite global uncertainty and US tariff policies, but warned the "steep drop" in new orders and ongoing job losses underlined the sector's fragile outlook ahead of the Budget.
Stephen Innes at SPI Asset Management said markets were "facing a wall of worry: high valuations, political noise, and historically the worst month for risk," noting that while US consumer spending remained resilient, job growth was "staggering like a drunk across cobblestones" with payroll revisions leaving "May and June basically flat."
He added: "If the next release prints negative - rare outside a recession - then September's cut is not a probability, it's a lock."
The UK's broader private sector remained subdued, with the Confederation of British Industry's Growth Indicator showing firms expect activity to weaken further in the coming quarter.
The index registered a net balance of -15% for August, up slightly from July's -18% but far below last year's +9%.
CBI deputy chief economist Alpesh Paleja said there was "little evidence yet of a meaningful turnaround" as companies prioritise resilience over long-term investment amid rising costs and demand uncertainty.
In housing, Nationwide data showed annual price growth slowed to 2.1% in August from 2.4% in July, while prices slipped 0.1% on the month.
Chief economist Robert Gardner said affordability pressures, with average mortgage costs now at 35% of take-home pay versus a long-term average of 30%, continued to weigh on the market, though falling borrowing costs and expected rate cuts could gradually improve conditions.
Bank of England data meanwhile showed net mortgage approvals rose to 65,400 in July, the third consecutive monthly increase, while the effective interest rate on new mortgages fell to 4.28% from 4.34%.
Stephanie Daley at Alexander Hall said the figures reflected "resilience of buyer demand" supported by policy changes such as the permanent Mortgage Guarantee Scheme and easing loan-to-income caps.
In Europe, eurozone unemployment fell back to a record low of 6.2% in July after a revised 6.3% in June, with youth joblessness dropping to 13.9% from 14.3%, Eurostat reported.
Meanwhile, Chinese manufacturing activity improved unexpectedly in August.
The private RatingDog PMI rose to a five-month high of 50.5 from 49.5 in July, topping forecasts and signalling expansion for the first time since March.
Founder Yao Yu called the rebound "a breath of relief rather than a sustained rally," noting domestic demand remained weak despite a slower contraction in export orders and rising business confidence.
Innes said China's market engine was "roaring again, but the smell of fumes is impossible to ignore," adding: "Liquidity has been pumped into the system with a firehose, and stocks have surged ahead of their Western peers.
"Yet the true accelerant isn't growth fundamentals, it's leverage - margin debt sloshing in the tank like gasoline.
"The rally feels less like a finely tuned machine and more like a drag racer revving at the line: fast, flashy, and thrilling, but one wrong gear shift and the whole thing risks spinning out."
Defence names, gold miners in the green
On London's equity markets, defence stocks advanced after the UK secured a £10bn contract to supply Norway with at least five new warships.
Babcock International gained 2.07%, Rolls-Royce Holdings rose 2.8% and BAE Systems climbed 1.91% as the government said the deal would support 2,000 jobs at BAE's Glasgow shipyards and a further 2,000 roles across the UK maritime supply chain through the late 2030s.
"BAE Systems was a notable gainer as investors reacted positively to its role in a £10 billion deal between the UK and Norway to supply the latter with at least five new warships," Mould said.
"The feel-good factor spread to other defence businesses which were pulled higher in BAE's tailwind.
"This kind of deal is tangible evidence of how the increased appetite among European countries to spend on their military capabilities could benefit the likes of BAE."
He added that Rolls-Royce "has been an investor's ticket to riches in recent years, delivering super-sized share price returns" and that "investor appetite to back a spin-off vehicle from Rolls-Royce could be huge" if its small nuclear reactor business proceeds with a listing.
Precious metals miners also rallied as gold prices approached record highs and silver hit a 14-year peak.
Fresnillo added 1.91%, Endeavour Mining rose 3.47% and Hochschild Mining surged 6.76%.
Innes noted that "while US stocks sagged into the month's end, bullion basked in August's glow" with "gold setting fresh record closes" as markets pencilled in a September Fed cut.
Kainos Group jumped 22.49% after forecasting full-year revenues at the upper end of consensus estimates, citing stronger-than-expected sales.
Domino's Pizza Group climbed 8.76% after unveiling a £20m share buyback despite flagging higher net debt, while maintaining full-year guidance.
"Companies are often accused of getting the timing wrong when purchasing their own stock," Mould said, "but Domino's is buying into considerable price weakness."
Genuit Group gained 3.41%, reversing earlier losses after announcing the £55.6m acquisition of Monodraught, a UK commercial ventilation provider.
On the downside, luxury stocks weakened further, with Burberry Group falling 2.77% and Watches of Switzerland down 1.78%, extending losses from Friday's session.
Reporting by Josh White for Sharecast.com.
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