Speaking at the British Chambers of Commerce yesterday (Thursday 26 June), BoE governor Andrew Bailey said increases to employer National Insurance Contributions had impacted the jobs market more than expected.
Bailey said: “There are a number of ways this increase in the cost of employment could play out: it could be absorbed by firms, either in lower profit margins or through productivity improvements; it could be passed on to customers through higher prices; it could be reflected in lower wages; or it could lead firms to reduce employment.”
The BoE governor stated the UK economy grew by 1.1% in 2024 compared to 2023, and by 1.5% in Q4 last year versus the fourth quarter of 2023.
Moderate pace
He added while growth was “weak” in the second half of last year, 2025 saw a “strong start” with 0.7% growth reported in Q1, which was “stronger than expected”.
However, Bailey warned the bank expected the economy to grow at a more “moderate pace over the coming quarters”.
This was attributed to a number of economic pressures, including rising energy prices, inflation, unpredictable global trade policies and tax hikes.
Bailey said: “While the significant progress we have made on disinflation has allowed us to cut Bank Rate, we retain a restrictive monetary policy stance to squeeze out remaining persistence in inflationary pressures.”
Unpredictable world
He added: “Interest rates remain on a gradual downward path. But monetary policy is not on a pre-set path – and at the June meeting, there was not a strong enough case to cut Bank Rate."
The BoE governor further detailed a weaker labour market, coupled with falling employment and rising unemployment along with declining wage growth would enable the bank to cut interest rates.
At its last meeting, the bank’s Monetary Policy Committee opted to hold interest rates at 4.25% in a bid to meet its 2% inflation target.
This comes as many operators continue to grapple with Covid loan repayments on top of cutting staffing levels and opening hours to cope with rising costs.
Bailey concluded: “In an unpredictable world, low and stable inflation matters more than ever, because that – alongside the supportive initiatives being pursued by the Government – enables businesses and households to plan ahead and invest, a key foundation for sustainable growth in the UK economy."
