London Poised for Sixth Straight Day of Gains Despite Unexpected UK Borrowing Surge

UK Borrowing Surges in December

Data released by the Office for National Statistics (ONS) revealed that public sector net borrowing rose significantly, totalling £10.1 billion more than December 2023. This figure exceeded the £14.1 billion forecast by economists and the Office for Budget Responsibility’s (OBR) estimate of £14.6 billion. Such numbers underscore the ongoing fiscal pressures on the UK government. 

Chancellor Rachel Reeves addressed these financial challenges during her speech in Davos, where she defended recent tax increases. She pointed to an undisclosed £22 billion gap between government revenue and spending inherited from the previous administration. “Stability is the prerequisite for economic growth,” Reeves emphasized, adding her commitment to restoring order to public finances and ensuring businesses can operate with confidence in the country’s fiscal stability. 

Market Reaction and Gains 

Despite the worrying fiscal data, investor sentiment remained upbeat. By Wednesday afternoon, the FTSE 100 had gained 0.2%, setting fresh record highs during the session. Other European markets also rallied: 

Meanwhile, Wall Street futures indicated a positive start, with S&P 500, Dow, and Nasdaq futures all trading in the green. 

Currency Markets Steady

The pound remained flat against the US dollar at $1.2351 (GBPUSD=X). Against the euro, sterling dipped slightly, with the euro trading at 84.5p. Earlier this week, the euro had reached its highest level since August at 84.7p. 

Analyst Insights 

Market analysts highlighted a cautious optimism. Fiona Cincotta from City Index noted that the mood has been bolstered by the absence of universal trade tariffs under the new US administration. However, she also warned of market sensitivity to daily political developments. “While the market mood has been buoyed, a level of caution is also apparent as daily comments from key political figures influence market movements,” Cincotta explained. 

A Balancing Act 

The juxtaposition of a surging stock market with mounting government borrowing highlights the fine line policymakers and investors must navigate. While markets appear to have shrugged off fiscal concerns for now, the sustainability of this trend may hinge on the government’s ability to manage its finances effectively without stifling economic growth. 

Looking Ahead

As the FTSE 100 eyes its sixth straight day of gains, all eyes will remain on both domestic fiscal policy and global economic developments. Investors will be closely monitoring how these dynamics play out in the weeks and months ahead. For now, London’s markets are enjoying a strong start to 2025, signalling resilience in the face of uncertainty.