Interest rate cuts will be slower amid the Budget tax rise for employers

The Bank of England governor Andrew Bailey has said they will be forced to cut interest rates at a “gradual” pace as they work out the impact of Labour’s Autumn Budget raising employers’ national insurance contributions.

Speaking at the Treasury select committee Bailey said there could be a few outcomes from the Chancellor’s £25 billion increase including the rise in the minimum wage in 2025.

Bailey told MPs on Tuesday, “There are different ways in which the increase in employer national insurance contributions announced in the autumn budget could play out in the economy.

He added, “A gradual approach to removing monetary policy restraint will help us to observe how this plays out, along with other risks to the inflation outlook.”

Bailey said the Budget has caused mortgage costs to increase after Rachel Reeves announced £70 billion in annual rises until 2030.

The Bank’s governor also told MPs, “I saw the BRC’s [British Retail Consortium] letter and I think they’re right to say, I think there is a risk here that the reduction in employment could be more. Yes, I think that’s a risk.”