Autumn Budget Insights with David Smith, Economics Editor of The Sunday Times

David Smith, Economics Editor of The Sunday Times joins ⁠Mark Craddock⁠, Partner and Head of Finance Executive Search at Eton Bridge Partners, to unpack the key takeaways from Chancellor Rachel Reeves’ first Autumn Budget on Friday 28th November 2025 – exploring what it means for you, your business, and the wider economy.

Mark Craddock: I’m delighted today to be joined by David Smith, Economics Editor of The Sunday Times. David, lovely to have you with us. 

David Smith: Mark, it’s great to be talking to you. It’s been a busy time since Rachel Reeves’ budget speech, but I’ve always got time to talk to you and it’s nice to be here. 

Mark: What was Rachel Reeves trying to achieve with this budget? 

David: It’s a good question, because the answer isn’t straightforward. 

First, there was a lot of pressure on both her and the Prime Minister, Keir Starmer, ahead of the budget. That pressure peaked around the time of that strange early morning press event in Downing Street, when everybody assumed she was going to put up income tax rates by 2p in the pound across all rates. 

We did see an element of that, but only for selected groups. Once that episode happened, and it was seen as possibly even a resignation issue for her because it looked like she was clearly breaking the manifesto, I think the nature of the budget changed quite dramatically. It became a budget about bolstering her position. 

That meant bolstering her position within the party by giving the party something. Two or three weeks ago, one of the big announcements in the budget – the removal of the two-child benefit cap so that families on benefits with more than two children would receive additional benefits for third and fourth children – was not in the plans. That was added, I think, to secure support from Labour benches and take some of the pressure off both Reeves and Starmer. 

The other important element is that I’ve never come across a Chancellor who is more aware of what’s happening in the financial markets: gilt markets, the cost of government borrowing, and what the big investment banks are saying about the government. She keeps in close touch with some of those big investment banks. 

So having a budget that did not get an adverse response from the financial markets was very important. I think they will regard the response so far as quite a win in that respect. They didn’t want a budget followed by a surge in the cost of government borrowing. Putting in additional headroom to meet the fiscal rules was very important. 

So, in summary, her three ambitions were: 

1. Bolster her own and the Prime Minister’s position. 
2. Do something Labour MPs could support. 
3. Make sure the markets stayed on side. 

Mark: You mentioned the markets there. When you look at the stock market, the bond market, the currency markets, how have they reacted in the 48 hours since the budget? 

David:  So far, the Treasury will be quite relieved by what has happened. 

Gilt yields – the cost of government borrowing – fell quite sharply on the day of the budget. We had this peculiar early release, and when that came through, the instant reaction of the markets was for gilt yields to fall because they saw the additional headroom Rachel Reeves had built in to meet her fiscal rules. That fall has been largely preserved. 

Sterling is up a bit. The stock market has done okay. Markets, of course, move on quickly. They respond to an event like a budget and then the next thing they focus on is something like US jobs figures or what they expect the Federal Reserve to do. They don’t dwell on it in the same way we do when we’re digesting all the implications. 

For global investors, every country has a budget. We build ours up into something of huge importance, but we don’t spend much time thinking about the French or German budgets, even though they also have an impact. 

The early reaction here was good, and that’s about as much as a Chancellor can hope for. If the initial market reaction is positive, that’s a win. It’s a bit like when a chief executive is dismissed or resigns and the share price goes up – that’s a clear signal. In this case, I think she’ll be quite pleased with the reaction of the markets. 

Mark: Looking at the job market, in the last few weeks we’ve seen a small rise in unemployment and a fall in the number of vacancies in the UK. When you look at the budget and look ahead to 2026, where do you think those two parts of the market could be heading? 

David: One of the things we’re still grappling with, as you know, is the reliability of the job market figures, because they’re driven by the Labour Force Survey. It used to be a bigger, more robust survey before response rates fell. That survey shows a small rise in unemployment, and the OBR, the official forecaster, expects that to continue for a little while over the next few months. 

A lot of this, particularly in sectors like retail and hospitality, is still the result of last year’s budget: the increase in employers’ National Insurance and, more importantly, the reduction in the threshold at which National Insurance begins to be levied. That was very bad for sectors employing a lot of relatively low-paid and part-time workers, and that effect is still coming through. 

We’ve seen the number of people on payrolls fall quite a bit over the last twelve months, although the Labour Force Survey suggests employment overall is still rising. The truth is somewhere in between. What’s clear is that we’ve moved away from the really rapid employment growth we had in the 2010s, when we added nearly four million people to the number in work in the UK. Now it’s a much more difficult grind, particularly at the lower end of the labour market. 

On top of that, debates about the impact of AI on jobs are starting to come in. 

One post-budget measure that’s quite helpful is the proposed relaxation of part of the Employment Rights Bill: there will no longer be first-day rights on unfair dismissal. That was seen as a barrier to employment by many firms. Changing that to a six-month qualifying period, as advocated by many think tanks and others, makes sense. There’ll be some reaction against it in the Labour Party, but from the labour-market perspective it should help. 

Overall, I’m not too troubled by what’s happening in the labour market. The big development over the past few years was the rise in economic inactivity – people of working age who are not just unemployed but outside the job market altogether. 

If you look at the percentage of working-age people who are economically inactive, it has fallen at the same time that unemployment has risen slightly. Those are two sides of the same coin. People have moved off inactivity and into being available for work. If there are no jobs immediately available, they show up as unemployed rather than inactive. So some of this is a statistical adjustment. 

You mentioned falling vacancies. It’s not long since we had the tightest job market we’ve ever experienced in this country. Post-pandemic, lots of people dropped out of the labour market, and we lost the supply of EU workers because of Brexit. Sectors like hospitality and retail, which have been protesting about higher taxes, were the very ones that couldn’t get workers. There were many hospitality outlets, restaurants, cafés and so on that simply couldn’t open because they couldn’t get staff. 

We’ve moved away from that exceptionally tight labour market to something more normal, and that’s really why vacancies have fallen so much over the past three years. 

Mark: David, we’re seeing some positive news about a potential peace deal between Russia and Ukraine. I think we’re all very hopeful that can come true. What impact could that have on the UK and European economies if a peace deal is secured? 

David: The Russia–Ukraine war has been hanging over us for more than three years and has clearly had an economic effect. It initially pushed up inflation and has created ongoing uncertainty. A peace deal would be greeted very positively as an end to some of that uncertainty. 

One thing not really addressed in the budget is that we’re going to have to spend a lot more on defence. If you look at the NATO commitment to spend 5% of GDP on defence, we’re currently just creeping up to about 2.6%. That’s a lot of money, and there isn’t room for that within the present government plans. 

I think many in Europe and the UK are willing to spend more on defence, but 5% by the middle of the 2030s looks very high. There is a view that once Trump is gone and once there is peace in Ukraine, some of that pressure might ease. People might be comfortable with, say, 3.5% of GDP on defence rather than pushing to 5%. That would also be economically positive, though less positive for defence industries, which have benefited from this period of turbulence. 

But generally, any end to a war – whether in Ukraine or in Gaza – is positive: an end to the killing and to a major source of risk and uncertainty. It would certainly help. 

Mark: Thank you. We know we’ve struggled for growth in the economy over a number of years. If we go back to the banking crisis, public debt increased; then we had the impact of Brexit and the significant impact of COVID. There’s always a group of people who argue for a radical reimagining of the UK economy. Is that politically and economically naive, or is it possible? 

David: It’s interesting, because people often talk about “reimagining” an economy when things are going well, but that’s the last time you’re likely to do it. When you’re doing well, you’re happy to carry on as you are. When you’re doing badly, sometimes there is a need to do something really radical. 

Take Argentina as an example, with its “chainsaw” president. Argentina has been in and out of IMF support for many years, with currency runs, devaluations and financial crises. We would never want to be in that situation. 

Some people in the UK say, “We’ve just got to go back to how we used to be,” which includes being members of the EU. I always say: I opposed leaving the EU, but that ship has sailed. I can’t now imagine a situation, particularly with Reform UK ahead in some polls, where any of the main parties would argue for re-joining, even though public opinion has shifted and many people think Brexit has damaged us. 

If we tried to rejoin, the EU we returned to would be different from the one we left. We wouldn’t have the same terms of membership. And in many ways, we left the EU because people wanted change; they wanted something better. They maybe didn’t think we’d become “Singapore on Thames”, but they thought we could do better than we were. 

We still haven’t made up our minds as a country. Do we want to be more highly taxed with better public services, like the Scandinavian countries, which tend to top happiness rankings? Or do we want to be more like America, with lower taxes, weaker public services and more of a survival-of-the-fittest mentality? 

At the moment, the irony of Brexit is that we’ve left the EU, but in many ways – in terms of public spending relative to GDP and in terms of economic growth – we’ve moved closer to the big EU countries rather than away from them, and certainly closer to them than to the US. 

One of the disappointments with the alternative parties we have at the moment, such as Reform and the Greens, is that they don’t really have serious, practical policies for reimagining the country. Their ideas come from either an ultra-left or ultra-right playbook, and you have to ask whether any of it is workable. 

I do think the need to do something different is there. Maybe it’s something I should be writing about more, rather than just commenting on budgets. So you’ve given me a good idea there, Mark, for future columns. 

Mark: Thank you, David. Immigration seems to be right at the top of opinion polls as perhaps the most important issue to the British public at the moment. There’s a lot of talk about small boat crossings. You mentioned Brexit and people moving from the EU to work in the UK. There’s also a lot of talk in the press about wealthy people leaving the UK for countries such as the UAE and Singapore. Can you step back and give us some data, some facts, some economic evidence of what’s really going on with immigration and its impact on the UK economy? 

David:  The numbers have changed quite a lot. 

We had what was known as the “Boris wave”: several things happened at once. People were welcomed from Ukraine. People were welcomed from Hong Kong if they held certain passports. And there was a determination, when Boris Johnson was Prime Minister, not to allow Brexit to get in the way of firms needing workers. It didn’t work as well as intended, as we discussed earlier, because there were severe worker shortages once we left the EU, and the workers coming in on visas were not necessarily the same as those who had left. 

The latest figures show net migration into the UK at just over 200,000 in the latest 12 months, which is much lower than it was. That mainly reflects tighter visa rules and restrictions on family members – for example, students and care workers not being allowed to bring dependants. 

For a long time, people like me said there was too much focus on small boat crossings and asylum seekers. But the big fall in net migration means asylum seekers now represent a much larger share of total arrivals. Asylum seekers come and generally don’t leave quickly; students come and then do leave. 

At the same time, more young British people are leaving than arriving. Some leave to study abroad, but others leave because they see better opportunities elsewhere. From a national-prospects perspective, that’s depressing: you don’t want all your young people going to Dubai, Portugal, Australia and so on. Many NHS workers apparently move to Australia because working in the Australian health system is more attractive than working in the NHS. Losing talent is always bad. 

On the wealthier side, the “bridge too far” in clamping down on non-doms was the idea that they would be subject to UK inheritance tax on all their worldwide assets. If you are, say, a very wealthy individual with assets spread around the world, the last thing you want is for all your worldwide assets to fall into the UK inheritance-tax net. That was an open invitation for some non-doms to leave, and some have done so. 

On the other hand, a lot of wealthy Americans seem to be coming to the UK to escape Donald Trump and the political climate in the US. The London property market is benefiting from that, as is the Cotswolds. There is a two-way flow. 

For the government, net migration coming down is good politically, but they won’t be seen to have solved the issue until the number of asylum seekers in hotels is reduced, small-boat crossings are clearly down, and some kind of effective agreement with France is in place. 

Part of the problem with immigration, in political terms, has simply been the sheer scale of the numbers. Reducing those numbers is a step in the right direction from the government’s point of view. 

Mark: David, looking ahead to 2026 and beyond, what are the most credible reasons to be positive and optimistic about the UK economy? 

David: The most credible reasons are that we’ve already come through a couple of big shocks in the 2020s. It certainly hasn’t been the “roaring twenties” Boris Johnson once promised. The shocks were the pandemic and the Russian invasion of Ukraine, which drove up inflation. 

We’ve also been through another shock: the move from near-zero interest rates to more normal, pre-financial-crisis levels, with Bank Rate peaking at more than 5%. That’s been a big adjustment for the economy. 

Now, assuming – and it is a brave assumption – that we can move into a more shock-free period and that interest-rate cuts start to feed through, a period of normality would help a lot. If the Chancellor and Prime Minister can head off pressure from within the Labour Party to dislodge them, then political, financial and market stability would help businesses plan for the future. 

In that environment, firms can think clearly about who they want to recruit, where they want to invest, and where they want to expand. So the key is a bit of normality. 

If we get that normality, I’m quite positive about prospects for 2026. If, instead, we have an ongoing “psychodrama” within the Labour Party, we’ll likely stay stuck in a low-growth environment, with businesses and consumers reluctant to take risks. 

It’s in the balance, but on balance I am positive about prospects for 2026. 

Mark: David, if you’re positive, I’m positive. Thank you so much for joining us today. We look forward to speaking with you again very soon.