The Bank of England’s governor has cautioned that recently implemented business tax increases could potentially delay future interest rate reductions. Speaking to MPs on the Treasury select committee, Andrew Bailey expressed concerns about the impact of higher national insurance contributions on monetary policy decisions.
The Bank’s recent move to lower interest rates to 4.75 per cent, marking the second reduction this year, came as inflation fell more rapidly than anticipated. However, Bailey highlighted the autumn budget’s increase in employers’ national insurance contributions as a significant source of uncertainty for future policy decisions.
Major retailers have voiced strong opposition to the chancellor Rachel Reeves’s policy shift, with more than 70 prominent companies, including Tesco, Marks & Spencer, and Sainsbury’s, warning of inevitable job losses and price increases. Economic forecasts suggest between 80,000 and 100,000 positions could be eliminated over the next five years.
The governor emphasised ongoing concerns about UK services sector inflation, describing current levels as “incompatible” with the Bank’s 2 per cent target. Market analysts anticipate October’s Consumer Price Index to reach 2.1 per cent, primarily driven by rising household energy costs.
The implementation timeline for additional monetary policy adjustments remains uncertain, with financial markets not expecting further rate modifications until early 2025. The Bank’s cautious approach reflects its commitment to observing how various economic factors, including the NICs increase, influence inflation trends.
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