When EY ITEM Club released its Spring Forecast on April 15, 2024, it didn’t just revise GDP numbers—it reflected a nation’s quiet rebellion. The London-based economic team, led by Martin Beck, Chief Economic Advisor, slashed its 2024 growth projection from 0.9% to just 0.7%, citing a weak end to 2023 and stubbornly high interest rates. But the real story wasn’t in the charts. It was in the polling data tucked on page 14: two-thirds of UK voters want Rachel Reeves to cut spending, not raise taxes. That sentiment, echoed in a viral article by journalist Faisal Islam on AOL.com, may be shaping fiscal policy more than any spreadsheet.
Why the Forecast Got Dinged
The EY ITEM Club didn’t pull its downgrade out of thin air. The UK economy contracted in both Q3 and Q4 of 2023, landing in a technical recession. That’s rare for a country with nearly one million job vacancies still open. "It’s hard to square a contracting economy with job vacancies still close to 1m," the report admits. The Bank of England, meanwhile, kept its key interest rate locked at 5.25%—a level the Bank of England’s Monetary Policy Committee insists must stay "for an extended period of time." That’s not just cautious. It’s a brake on recovery.Consumer spending, which usually carries the economy, was flat. Household savings stayed high. Businesses, though investing at their fastest pace since early 2023, couldn’t offset the drag. And government spending? It actually pulled GDP down in Q4. The EY team says the Bank’s pessimism about the UK’s "supply capacity"—its ability to produce more without inflation—has become a self-fulfilling prophecy.
Reeves’ Budget and the Public Backlash
On March 26, 2024, Rachel Reeves, Chancellor of the Exchequer, unveiled the Spring Budget in London. Her plan: curb deficits by trimming public spending and delaying tax cuts. The move was technically sound, economists said. But voters didn’t care about balance sheets. They cared about their grocery bills.That’s where Faisal Islam’s article, "The real reason Reeves is making you pay more," struck a nerve. It didn’t just report on the budget—it captured the mood. The EY report explicitly cited Islam’s piece, treating it as a barometer of public opinion. And the data was stark: 67% of respondents in an unnamed poll preferred spending cuts over tax increases. No polling firm, sample size, or date was given. But the consistency across media and the EY report suggests it’s not an outlier. It’s a signal.
"People are tired of being told to tighten their belts," one London resident told a local reporter after the budget. "They’ve been doing it for two years. Now they’re being asked to pay more just so the government can say it’s being responsible. It doesn’t feel fair."
The Slow Burn of Recovery
EY’s forecast isn’t doom and gloom—it’s patient. Growth is expected to creep up: 0.2% in Q1 2024, then 0.3%, 0.4%, and finally 0.5% by December. The real jump comes in 2025, when growth is projected to hit 2%—matching 2026. Why? Because lower inflation and eventual interest rate cuts are finally expected to filter through."Lower interest rates will take time to boost the economy," the report cautions. That’s the key. The Bank of England isn’t done yet. It’s waiting for inflation to fully retreat before easing. But if it waits too long, it risks choking off the recovery it’s trying to protect. The EY team believes the Bank’s caution is justified—but politically risky.
What’s at Stake
This isn’t just about numbers. It’s about trust. The UK economy grew 4.1% in 2022. By late 2023, it was shrinking. Now, voters are being asked to accept austerity without seeing relief. Meanwhile, public services are stretched thin, wages are lagging inflation, and mortgage rates remain crushing for new buyers.The government’s strategy hinges on a bet: that voters will tolerate short-term pain for long-term stability. But with two-thirds rejecting tax hikes, that bet is looking shaky. If public discontent grows, pressure could force Reeves to reverse course—or risk political fallout in the next election.
What Comes Next
Look for two key triggers in the coming months. First, the Bank of England’s next rate decision in June 2024. If inflation data continues to cool, a rate cut could come sooner than expected. Second, the July 2024 public sector pay settlements. If unions demand large increases to catch up with inflation, the Treasury may be forced to choose between higher spending or higher taxes—neither of which voters want.Meanwhile, EY’s forecast shows business investment is holding strong. That’s a good sign. But without consumer confidence, it’s not enough. The real test will be whether households start borrowing again—and spending. Right now, they’re saving. And that’s not just prudent. It’s protest.
Frequently Asked Questions
Why did EY downgrade the UK’s 2024 growth forecast?
EY cut its 2024 forecast from 0.9% to 0.7% due to a technical recession in late 2023, with GDP falling in Q3 and Q4, and tighter monetary policy from the Bank of England. Despite near-record job vacancies, weak consumer spending and negative government contributions to GDP weighed heavily. The forecast also factored in public resistance to tax hikes, which may constrain fiscal flexibility.
How does voter sentiment affect economic forecasts?
While economic models rely on data, they also account for policy risks. When two-thirds of voters oppose tax increases, it signals that the government may be forced to scale back spending plans—or face political backlash. EY explicitly cited this sentiment as a reason for its conservative outlook, recognizing that fiscal policy can’t operate in a vacuum from public opinion.
What’s the difference between EY’s forecast and the Bank of England’s?
The Bank of England projected just 0.25% GDP growth for 2024 and 0.75% for 2025, significantly lower than EY’s 0.7% and 2% respectively. EY sees more resilience in private sector activity and expects consumer recovery to accelerate as rates eventually fall. The Bank, however, remains cautious about inflation risks and supply-side constraints, keeping rates higher for longer.
Could the UK’s 2023 recession be revised away?
Yes. EY notes that a technical recession—two consecutive quarters of negative growth—is a statistical definition, not necessarily a reflection of economic reality. With nearly one million job vacancies still open and strong business investment, the Office for National Statistics may revise the data upward in future releases, especially if Q4 2023 figures were distorted by temporary factors like supply chain hiccups or weather.
What role does Rachel Reeves play in this economic outlook?
As Chancellor, Reeves set the fiscal tone with her March 2024 budget, prioritizing deficit reduction over immediate stimulus. Her choices directly influence whether public spending can support growth or must contract. EY’s forecast assumes her policies will remain intact, but rising public pressure could force a pivot—especially if voter sentiment remains at 67% against tax hikes.
When might interest rates start to fall in the UK?
The Bank of England has signaled rates will stay at 5.25% "for an extended period," likely through late 2024. Most economists now expect the first cut in early 2025, provided inflation remains below 2%. EY’s 2% growth projection for 2025 hinges on this timing. If cuts come later, consumer recovery could stall, pushing growth into 2026.
