I am absolutely exhausted and mesmerised trying to keep up with the tsunami of events. Suffice to say, the geopolitical issues in Iran, Greenland, and Ukraine have grabbed most of the headlines.
Stock market acolytes seem to have left those crises in the ‘in-tray’ and been let off the leash. And about their business, they have been! There have been a few wobbles along the way, mainly stirred up by controversial interventions courtesy of President Trump. Nonetheless, most global indices have made progress.
Equity investors seem very hopeful that the US economy will again be robust. Market acolytes flagged that US growth could reach 5.4 per cent as an annualised forecast for Q4, compared to the UK’s derisive 1.1 per cent.
My great friend, Simon French, Chief economist at Panmure Liberum, put the matter into perspective, suggesting that a more appropriate comparison should be on an annualised basis for 2026, registering the US at 2.4 per cent against the UK’s rather flat 1.1 per cent.
Investors are hopeful that there will be at least two rate cuts in the US and the UK, which would provide much-needed momentum for potential equity gains. A parallel drop in bond yields would also help lower borrowing costs.
The FTSE 100 has reached fresh records, having breached the 10k threshold last week. Banking, mining and defence stocks have put in remarkable performances.
It should not be forgotten that the FTSE 100 is not a barometer of the UK economy. It is an international index, gleaning 75% of its income from dollar-related earnings. Its impressive performance last year (+21 per cent) has little to do with Government policy.
Also, the Dollar has devalued against Sterling by almost 11 per cent over the past year. This fact means UK stocks with Dollar earnings gain. The Chancellor has maintained fiscal discipline, which is helpful, but can it be maintained in the years to come?
If the Government could increase its level of deregulation not only for financial services, which, in fairness, is underway, but also for other areas such as technology, the benefit to the country, now that it is out of the EU, could be considerable.
The IPO market in London has been dire for almost two years. If international public offerings are to return to the LSE, they will need to be financially encouraging with attractive tax breaks.
Those involved in M&A activity will have noted that Glencore rejected the idea that Rio and they should merge in a £190 billion deal, and we have yet to reach the end of January. It will be interesting to see if BHP muscles in on the act.
Gold has reached record levels around $4,633 an ounce, partly due to US Treasuries attracting less support than two years ago and to the significant involvement of Central banks, which have been keen buyers. Gold is also a safe haven for disillusioned or concerned equity investors.
The Government’s PR machine has been at full tilt since the start of the year, in an attempt to galvanise support for what looks like an economy that needs either a dose of steroids or some electroconvulsive therapy for potential depression.
In support of this likely condition, the UK’s unemployment rate seems stuck at 5.1 per cent, with little sign it will reverse in the short term. Job vacancies have been falling steadily from 1.3 million in 2022, post-Covid lockdown period, to 729,000 in November 2025.
The Government is sensibly looking to help young people get into employment through apprenticeship schemes, but it will take time to have a positive effect. It is good news that almost one million young people will benefit from learning or employment opportunities as a result of a major £820 million funding package.
The situation is also not helped by the fact that some people who left the workforce after Covid now want to return to full employment. It should also be noted that economist Julian Jessop recently highlighted that hiring has declined due to a lack of confidence among the business community, causing persistent weakness in the labour market.
Fraser Nelson, the celebrated journalist and Times columnist, recently flagged that net migration policies, started by the Tories, now appear to be collapsing, and there is evidence to suggest it may not take more than another year for Labour to accomplish that mission.
However, this achievement, if it can be called that, has massive implications. The country could lose a mass of unskilled but very necessary Labour, together with emigrating doctors and other professionals, who believe their opportunities lie in other climes.
These gaps in the Labour market will need to be filled. It takes time for ‘incoming labour’ to become professional and competent. This exercise or change in the labour dynamic market could cost the government millions in taxation during the transition period.
Probably a more pressing problem is the defence of the realm. We still have not heard from PM Starmer and Secretary of State John Healey about plans for upping their game in terms of expenditure. The review has already been cancelled once, and we may not hear the findings until March.
Chief of the Defence Staff, Air Chief Marshal Sir Richard Knighton, has already warned that a significant sum of money will be required. Also, surely the UK cannot afford to wait another day, let alone a year. The Country needs action NOW!
The Treasury’s books may be balanced now, but with defence and migration likely to cost a king’s ransom, the Government cannot return to the taxpayer without severely damaging the economy. The Government has to look at public expenditure and welfare in particular. The days of ‘turning a blind eye’ to the problem are over.
As if the domestic agenda were not challenging enough. Enter stage right, President Donald Trump, who is alleged to have indicted criminal charges against Fed Chairman Jerome Powell for manipulating interest rates. Trump has flatly denied knowing anything about it. The plot thickens.
What is important is the independence of the FED, which has been the case since 1951. Central bank independence has been the bedrock of global financial stability. How pleasing it must be that all the main central banks have come out in support of Powell.
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David Buik is LBC’s Markets Commentator.
LBC Opinion provides a platform for diverse opinions on current affairs and matters of public interest.
The views expressed are those of the authors and do not necessarily reflect the official LBC position.
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