The Governor of the Bank of England has called for more dramatic cuts to interest rates if the jobs market sees a substantial slowdown.
In an interview with The Times, Andrew Bailey insisted: “I really do believe the path is downward” for rates.
He said that businesses are “adjusting employment” following Rachel Reeves’ tax hikes for businesses, particularly in the increases to employers’ national insurance contributions (NICs).
Interest rates currently sit at 4.25 per cent, having been held in June to “squeeze out persistent inflationary pressures” from geopolitical and trade uncertainties.
Inflation looks likely to exceed 3.4 per cent when official figures are revealed this week, but Bailey argued that sluggish growth could provide “slack” that could ultimately bring down inflation.
Bailey said: “If we saw the slack opening up much more quickly, that would lead us to a different conclusion.”
Job market downturn already here?
The intervention comes as permanent staff positions in London fell at the sharpest rate in 22 months.
Recruitment and Employment Confederation (REC) chief Neil Carberry has argued that much of the hesitation around hiring “stems from the scar tissue left by the Spring tax hikes”, as October Budget measures came into effect.
In the interview, Bailey touched on growing concerns around the tax burden on businesses and employers.
He said: “I think we’re getting more consistently the story that [businesses], if you take the national insurance change, are adjusting via the labour market. I don’t think we’re getting to a tipping point in the sense that it’s becoming a sort of flood.”
“I think the path [for interest rates] is down. I really do believe the path is downward but we continue to use the words ‘gradual and careful’ because … some people say to me, ‘Why are you cutting when inflation’s above target?’”
Mel Stride, the shadow chancellor, told The Times: “Labour’s reckless £25 billion national insurance hike is more than a tax on work — it’s a direct attack on aspiration, ambition and enterprise. Taxing businesses won’t grow the economy — it will do the exact opposite.”
