Despite Her Efforts, "Dire Reeves" Won't Push the UK Into Recession

Chancellor Rachel Reeves delivers the Autumn Budget 2024. Picture by Lauren Hurley / DESNZ.

Rachel Reeves "has been nothing short of dire," but this won't tip the UK into a major recession.

This is according to Dr. Savvas Savouri, Head of Macro at QuantMetriks Research.

"Her dire pronouncements on occupying No.11, and inaugural Budget, were such that one might suspect Reeves had a flutter on 2025 being a year in which the UK recorded a technical recession," says Savouri. "To my mind, this Chancellor will have to work much harder to tip the UK into a real recession.

Although Savouri says there is a chance of a "slight" technical recession in which negative growth is recorded for two consecutive quarters, this won't amount to what he describes as a "real" recession.

He explains one of the three economic pistons must fail for this to happen: the UK labour market or its property and banking versions. Failure in one piston ensures the others also misfire.

QuantMetriks Research was set up in 2005 by Savouri, a well-known figure in the City with a career in academia, investment banking and hedge fund management.

He says the question is whether the Chancellor's "amateurish mishandling of ENIC ensures the UK suffers a jobs, property and in turn banking crisis? Well, to my mind, very unlikely."

Economists are concerned about the Chancellor's tax on jobs, whereby she hiked the rate and threshold of employers' national insurance contributions (ENIC), which many businesses have indicated will mean tough calls on hiring decisions.

The risk of a material rise in the UK unemployment rate would, in turn, trigger mortgage and debt defaults, which risks impairing the financial sector and creating a serious recession.

Savouri explains that Reeves was gifted a helpful handover by the previous Conservative government. She took office at a time of elevated vacancies, extremely low residential Loan-to-Value consumer debt dynamics, and well-capitalised/provisioned banks.

"This 'Tory Backdrop' has largely ensured the hit to the UK’s labour market she most certainly caused will be absorbed in lessened hiring," she says.

As for the Bank of England, Savouri says it is getting things wrong.

"Somehow, the way Reeves has done her level-best to fuel UK wage inflation has been lost on the MPC. For it has 'gifted' her (and the UK economy) 2 rate cuts, when barely one was warranted," he says.

The Bank has arguably misstepped, as it cuts rates at a time when inflation risks returning to 3%, helped by the gifting by the government of public sector pay rises that easily exceed inflation.

Higher national insurance costs will also be passed on to consumer prices, in a classic wage-inflation feedback loop.

"I'd not be surprised if the MPC presents her with more very underserving, rate cut presents," he says.

Reeves announced in October's budget that UK government spending would rise by more than expected, which prompted the Bank to raise its inflation forecasts.

It will also drive UK GDP higher next year.

"The UK’s 'top line' economic growth will be spurred on by a combination of a higher deflator – i.e. inflation, something seemingly lost on the MPC - and yes, positive real GDP growth. No doubt her supporters in the press will be swift to print the headline 'Reeves the Remarkable', concerning thus far, a very much remarkably poor Chancellor."