As transformations go it is a little short of extraordinary. Rachel Reeves spent her first six months in office warning about the dire state of the public finances, the £22bn black hole and the difficult decisions she needed to make.

Those decisions came quick and fast – scrapping winter fuel payments for 10 million pensioners, hitting businesses with a £24bn rise in national insurance and imposing inheritance tax on agricultural land. But since the turn of the year the chancellor has taken a strikingly different approach. Gone are the warnings of doom and gloom. Almost overnight, Reeves has returned to the theme that helped win Labour the election: economic growth.

Britain, she argues, must learn from the positivity of US president Donald Trump and unleash the animal spirits. “I’m trying to channel my inner American and be more positive about things,” she said.

The new approach comes with a tacit admission that Labour got it wrong. On coming into office, the party pursued the political playbook used by George Osborne and David Cameron in 2010, taking the hard and unpopular decisions first with plans to proffer hope and optimism by the time of the election.

But as Sir Keir Starmer told the Cabinet recently, politics is moving faster than ever, and with it, people’s judgments. Labour’s collapse in the opinion polls since July last year eclipses anything on record. Any notion of a political honeymoon is dead.

Worse, there is evidence that the rhetoric from Starmer and Reeves has had a direct impact on both consumer and business confidence. A poll by YouGov found that many voters appear to have taken their early messaging to heart.

Seven in 10 people said they do not think the economy will improve this year, with voters just as pessimistic about their own household finances. Just over half of voters – 52 per cent – think Reeves is doing a bad job while only 13 per cent say she’s doing well.

Labour faces the prospect of being eaten on all sides. There is evidence that Reform UK has already taken a chunk out of its support – around 10 per cent – while there is a growing threat from the Liberal Democrats, the Greens and independents. The only sliver of hope is that as bad as the polls are for Labour, they are significantly worse for the Tories.

Meanwhile, Britain’s businesses are in a near-permanent state of revolt over the national insurance rise and the increase in the minimum wage. Barely a day goes by without a household name going public to criticise the government.

Their argument – that Labour’s jobs tax is hindering growth and will lead to job losses – is backed by official forecasts. Labour came into office saying growth was its number one mission. Yet the tax rises have produced an anaemic set of forecasts that are only looking worse with time.

The chancellor and her advisers decided in December that a change in course was needed and she went public with her relaunch in January. The contrast with the Reeves that entered No 11 is stark. In her earlier interviews, a veritable wall came down as soon as the cameras rolled. While in private Reeves can be personable and self-deprecating, any sense of that was lost in the early stages of her chancellorship.

However, she is now in permanent selling mode, publicly banging the drum for Britain and talking about how strong the UK’s prospects are with every opportunity she gets. She is also happy to reveal more about herself, such as the fact she takes a packed lunch to work.

However, the challenge is that for all the newfound optimism and bonhomie, Reeves’ initial diagnosis was not wrong. The public finances remain in dire straits and the chancellor is hemmed in by the “iron-clad” fiscal rules she chose.

There is now a near-universal expectation that the Office for Budget Responsibility will wipe out what little headroom Reeves has for her spring statement on March 26, forcing her to announce deeper cuts to public spending plans over the course of this parliament.

Given that the NHS and defence are protected, there will have to be significant cuts elsewhere. These will be confirmed in the government spending review in June. The Home Office, Ministry of Justice and Ministry of Housing, Communities & Local Government are currently going through the grim process of modelling huge year-on-year cuts to their budgets.

Reeves has insisted that she does not want to raise taxes but has not ruled out doing so. Economists believe that further tax rises in the autumn Budget are likely, with an extension of the current freeze on income tax thresholds beyond 2028 – known as a stealth tax – viewed as a likely option.

In the short term, the squeeze on public spending is likely to feed into public sector pay disputes. The government’s initial offer of a 2.8 per cent increase in pay for teachers, nurses and other public sector workers led to immediate threats of industrial action. Ministers say that around 4 per cent is likely to be the “ceiling” of the government’s pay offer, but unions – emboldened by last year’s generous settlements – are pushing for more.

The fiscal constraints also have repercussions for defence spending. Starmer has pledged to increase spending on defence from 2.3 per cent to 2.5 per cent but has yet to set a timeline for hitting the target. Senior government figures say that hitting it by 2030 – as the Tories pledged – is impossible, which could have geo-political consequences given Trump’s insistence that Nato allies should increase defence spending to 5 per cent.

But the concerns go far deeper. Most of the spending restraint is likely to be backdated to the end of this parliament. It raises the prospect that Starmer could head towards the general election having to make swingeing cuts to public spending to meet fiscal rules. The response from both Reeves and Starmer to concerns about Britain’s anaemic growth is to insist that they can defy the forecasts, that their policies will turn the economy around, that Britain’s path is not set in stone.

However, the challenge for Labour is that Britain’s future is not entirely in their hands. Global factors – Trump and tariffs, Ukraine, Iran and China – arguably have a far more significant bearing on Britain’s future. If Starmer and Reeves want to deliver on their promise to leave people feeling better off by the end of this parliament, they will need both the right policies and no small degree of good fortune.

Steven Swinford is the political editor of The Times.