Bank of England: Andrew Bailey names ‘biggest issue’ after Budget tax hikes
The governor of the Bank of England, Andrew Bailey, has revealed what he considers to be the “biggest issue in the immediate future” in the aftermath of the Budget at the end of October.
Bailey highlighted the business response to the government’s National Insurance increase and said the impact would be crucial for determining the pace of interest rate cuts next year.
In an interview for the Financial Times’s Global Boardroom Conference, Bailey said: “How companies balance the mixture of prices, wages, the level of employment, what is taken on margin, is an important judgement for us.”
In the Budget, Chancellor Rachel Reeves increased the rate of employers’ National Insurance to 15 per cent, while also cutting the threshold at which firms must start paying the levy.
Businesses have warned that they will be forced to raise prices and cut jobs as a result of the tax hike.
The Bank’s November forecasts suggested that the Budget will end up pushing up inflation by around half a percentage point, but it noted there was a lot of uncertainty about the business response.
Officials have laid out a “range of options” for how the tax hike will impact the economy, Bailey said, “some of which would imply greater inflation and some of which would imply less inflation”.
“You have to give companies a chance to sort out what their strategy is going to be. As we go into spring, we will have a better sense of where it is going,” he added.
The governor also reiterated the Bank’s “gradual” approach to reducing interest rates given ongoing uncertainty about the inflationary outlook.
Figures out last month showed inflation jumped back above the two per cent target in October, rising to 2.3 per cent. The Bank of England’s forecasts suggest it will peak at 2.75 per cent in the middle of next year.
Rate-setters have cut interest rates twice this year already, bringing the benchmark Bank Rate down to 4.75 per cent.