David Smith, Economics Editor of the Sunday Times, addressed an audience of Eton Bridge Partners’ clients and guests at London’s Bloomsbury Hotel on March 19th, 2025.

After sharing some Sunday Times readers’ jokes with the audience, Smith said he would focus on three things:

• Rachel Reeves’ upcoming economic update, on March 26.
• The prospect for interest rates.
• The impact of Donald Trump’s economic policies, particularly his trade tariffs.

On the chancellor’s economic update, Smith said there were two issues for business. One was any announcements she might make on March 26. The other was the impact of the measures she announced in her October 30 budget last year. The main measure for business, higher employers’ national insurance, takes effect on April 6 and is causing concern.

On the update itself, he said he expected Reeves to announce that she was meeting her fiscal rules by a comfortable margin. Her mistake in October, a “rookie error” as one economist described it, was to leave so little room for manoeuvre and prompt an air of panic about the coming update. She would meet her rules, Smith suggested, by means of the recently announced welfare cuts and by adjusting the parameters for future public spending. The easiest tax announcement she could make would be to extend the freeze on income tax allowances and thresholds from 2028 until the end of the decade, adding to this huge stealth tax, but he did not expect her to do that on this occasion.

While we await Reeves’s next decision, businesses are on the brink of feeling the consequences of her previous ones, notably the rise in employers’ national insurance (NI) announced in her October 30 budget and the upcoming increase in the national living wage. These changes will pose particular problems for businesses employing many low-paid workers, including those in retailing and hospitality. Employment costs for the lowest paid workers are set to rise by 5%, according to the Bank of England, while for those at the top of the wage and salary scale, the rise will be only 1%.

Smith noted that business surveys have been very gloomy about the employment outlook, while the official figures suggest jobs are holding up well. He did not expect a big rise in unemployment as a result of the upcoming changes, not least because we were coming off a very tight labour market. Wages were likely to take most of the strain, which is a challenge for businesses with many minimum wage workers. Reeves appeared to have gone out of here way to make enemies of many groups, with higher taxes on business, bringing farmers, pension pots and business asset disposal into the inheritance tax net, pensioners through winter fuel payments and, as audience members reminded him, VAT on private school fees.

While employment should hold up better than feared, the new official forecast from the Office for Budget Responsibility (OBR) will show a downgrade. The OBR was upbeat about growth in its October forecast, predicting a 2% expansion this year on the back of the government’s boost to public spending. That now looks unattainable, and the new forecast is set to come down to around 1%, largely reflecting the economy’s weak momentum in the second half of last year. Despite this, Smith said, it was probably time to take a less gloomy view of the UK.

Donald Trump’s election and his conduct in office had probably increased momentum for closer trade relations with the EU. Higher defence spending would boost the UK’s defence sector, which is internationally competitive. And, in the event of US tariffs, the UK is relatively well placed. More than two-thirds of UK exports to America are service-sector exports, which will not be subject to tariffs.

Where does all this leave the outlook for interest rates? The Bank of England left interest rates unchanged at 4.5% on Thursday March 20, as Smith had anticipated in his talk. There would, he said, be scope for two or three rate cuts before the end of the year. The end point for UK interest rates, the “neutral” rate, was likely to be between 3% and 3.5%. There would not be a return to the near-zero interest rates of the 2010s.

Finally, Smith addressed the more general question of Trump’s presidency which was already proving more disruptive, and not in a good way, than his first term. A global trade war will hurt everybody and is likely to mean lower growth and higher inflation in America itself, as the Federal Reserve warned later on Wednesday. Will this make Trump rethink his “beautiful” tariffs? With this president it is hard to tell.

A lively discussion followed, with many excellent questions. They included whether Rachel Reeves was safe in her job, and whether she was being treated more harshly than previous chancellors because she is a woman. Smith thought that Reeves was pretty safe, given her close ties to Sir Keir Starmer, though there were other Labour ministers who could take over. He agreed that she was being treated more harshly than many previous chancellors. Despite the attacks on her CV, he reminded people that she was the first chancellor in many decades to have worked as an economist.

As always, a huge thank you to David for joining us. We appreciate you taking the time to share your latest insights and answering our questions on the current UK economy.

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