Bailey warns that an increase in employer tax could delay interest rate cuts
The Governor of the Bank of England, Andrew Bailey, has warned that the recent increase in National Insurance contributions for employers could create uncertainty about future interest rate cuts.
Speaking to MPs on the Treasury Select Committee, Bailey noted that although inflation has fallen faster than expected—which prompted the Monetary Policy Committee (MPC) to cut interest rates to 4.75% earlier this month—the increase in employer taxes announced in last month’s Budget must. “one of the great uncertainties ahead”.
Bailey explained that if high employment costs lead to job cuts, they would soften the labor market, requiring a gradual approach to lowering interest rates. “There are different ways in which the increase in National Insurance contributions for employers announced in the Autumn Budget can play into the economy,” he said. “Working gradually to remove monetary policy from confidence will help us look at how this works, as well as other risks to the inflation outlook.”
His comments come amid growing concerns among businessmen. More than 70 major retailers—including Tesco, Marks & Spencer, Sainsbury’s, Asda, and Next—have written to Chancellor Rachel Reeves, warning that the “huge scale” of the new charges will make job losses “inevitable”. Economists predict that up to 100,000 jobs may be lost in the next five years due to the increased financial burden on businesses.
Bailey also highlighted that inflation in the UK services industry remains very high and is “out of line” with the Bank’s target of returning inflation to 2%. Official figures to be released tomorrow are expected to show an increase in the Consumer Price Index (CPI) to 2.1% in October, driven by rising electricity bills.
Market traders are now adjusting their expectations, with many not expecting another interest rate cut until early next year.
