Not everything has gone smoothly for Keir Starmer. At the end of Labour’s first calendar year in power since Gordon Brown was in Downing Street a decade and a half ago, the prime minister is on the back foot after a run of disappointing economic updates.

With a backlash over several unpopular tax and spending decisions, and as pressure mounts for a change in course early in the new year, the new government is in danger of losing control of its primary mission to revive Britain’s misfiring economy.

Aiming to regain the initiative, the chancellor, Rachel Reeves is preparing to give a speech early in the new year. With a pivotal spending review looming by late spring, the chancellor is expected to say that Labour has stabilised the economy and can now shift to focusing on the delivery of its manifesto pledges.

Labour’s critics, however, are circling. It’s clear that the government has dented economic confidence, and has a job on its hands to rekindle animal spirits after a dour first five months in charge.

Surveys of business and consumer confidence show the chancellor’s pitch-rolling ahead of her autumn budget contributed to weaker spending and investment, at a time when Labour focused mostly on hammering the Tories for leaving a dire economic inheritance.

Meanwhile, unpopular decisions – such as cutting winter fuel payments and sticking to the two-child limit on benefits – were made quickly and loudly, while Labour’s landmark policy changes, like the creation of GB Energy and the industrial strategy, took longer to materialise.

“You have to reflect on how winter fuel payments was handled, glasses gate and all the rest of it,” says one senior figure in Labour circles. “This is partly what happens when you’ve been in opposition for 14 years, you have to learn government as you go along.”

Still, the narrative that Reeves has crashed the economy in the process is dramatically overblown. Britain’s recent poor run of economic data largely relates to the period before the chancellor made any changes, while the short-term outlook for jobs, growth and inflation always looked challenging.

Regardless of the £25bn budget increase in employer national insurance contributions (NICs), Britain’s jobs market was already cooling. High interest rates bearing down on economic activity are behind the fall in vacancies back to pre-pandemic 2019 levels.

It’s worth remembering the comparison to 2019 is to a time when the labour market was considered to be running hot. The Bank of England still reckons wage growth will remain resilient enough to keep inflation above its 2% target until at least 2027 – warranting its gradual approach to interest rate cuts.

Labour’s tax measures, increase in the minimum wage, and package of employment rights reforms could have an impact next year; with business groups sounding the alarm. Bosses say jobs could be lost, and the higher costs of employment passed on to consumers in the form of price rises.

Threadneedle Street is closely monitoring developments. But the context is important; Labour’s measures wouldn’t be the sole driver when interest rates are high, and the jobs market is already cooling. There will also not be a uniform response across the economy: companies in lower-paying sectors, such as hospitality and retail, are more likely to need to make changes. But not all will cut jobs, while others will lack sufficient pricing power to pass on higher costs to consumers, having already repeatedly done so during the recent inflation shock.

Some economists reckon that growth could be more resilient in 2025 than recent business and consumer confidence surveys suggest, and caution against reading too much into disappointing official growth figures.

With resilience in pay growth and cooling inflation, average household savings have strengthened. This could translate into higher spending in the new year, at the start of a slow journey to rebuild Britain’s economy.

That isn’t to say a rapid turnaround awaits – far from it, for a nation that has been through the wringer. Economists expect living standards in the current parliament will rise only modestly by the end of the next five years, which will make for a difficult next election.

Having been stung by the criticism of the budget, Reeves may also hold back from taking bolder action. She has pledged not to increase taxes any further, with a focus instead on finding efficiency gains from the public sector.

However, ahead of the spending review, this could be difficult to reconcile with Labour’s promise to turn the page on austerity. Paul Johnson, the director of the Institute for Fiscal Studies, has said he would be amazed if more money does not need to be found at some point. Coming up with the cash will require either a marked turnaround in economic growth or Reeves U-turning on her pledge not to increase taxes.

Entering the new year, the challenge for Labour will be to show that it can more than just steady the economy. And as the recent US election showed, securing economic growth is not enough on its own: households will need to feel the benefits.