Down To Business David Smith on the state of the UK economy
Dec 6, 2025
David Smith, Economics Editor at The Sunday Times, shares insights on the UK’s economic challenges. He discusses how recent tax rises and tighter spending could stunt growth, yet the markets responded positively to fiscal caution. Smith also dives into inflation concerns, particularly rising food prices, and the implications for the Bank of England. Additionally, he analyzes Keir Starmer's cautious approach to Brexit, hinting at a possible 'cat flap' strategy for closer EU ties without sacrificing key freedoms.
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Delayed Tax Hikes Ease Short-Term Pain
- The OBR's forecast reduced the urgency for immediate tax hikes after the November budget.
- Most announced tax increases are delayed until 2027–2029, so short-term economic damage is limited.
Markets Reward Fiscal Headroom
- Financial markets responded positively because higher taxes create fiscal headroom to meet rules.
- Bond yields fell on the budget day and have remained lower, calming investor concerns.
High Inflation But Heading Down
- UK inflation at 3.6% remains above most G7 peers and is a notable problem.
- David Smith expects inflation to fall and predicts the Bank of England will cut rates later this year and next.