UK Borrowing Surge Sparks Stock Slump Across Europe

European stock markets saw a drop following the UK’s announcement of a £20.2 billion public sector net borrowing in April 2025, which exceeded expectations. The surge in borrowing was mainly driven by higher public service wages and benefit spending, raising concerns about the UK’s fiscal health. As a result, the FTSE 100 fell 0.5%, and the pan-European STOXX 600 dropped 0.7%. These developments highlighted investor fears over the long-term sustainability of UK public finances.

The UK’s debt-to-GDP ratio has now risen to 95.5%, with the budget deficit reaching £70.3 billion—nearly £10 billion higher than initially projected. This has placed increasing pressure on Chancellor Rachel Reeves, who faces a difficult task in managing public finances amid high interest rates and growing market skepticism about further borrowing. Analysts have warned that the government may struggle to meet its fiscal targets unless it takes significant measures to rein in spending or raise taxes.

Meanwhile, the broader eurozone economy showed signs of strain, with a slowdown in service sector activity contributing to fears of a broader economic contraction. These developments underscore the interconnectedness of European economies, with the UK’s fiscal challenges potentially impacting investor sentiment across the region. As both the UK and the eurozone face similar economic pressures, the outlook for European markets remains uncertain, with heightened concerns about inflation, borrowing, and the potential for further economic tightening.