The Bank of England may lower interest rates further if signs of a slowdown in the UK job market grow stronger. In an interview with The Times, Governor Andrew Bailey emphasized the downward trend in interest rates, stating that the bank stands ready to act if economic slack increases.
Bailey Hints at More Cuts
Currently, interest rates stand at 4.25%, with the next review scheduled for 7 August. Bailey noted, “I really do believe the path is downward.” However, he added that any adjustments must remain “gradual and careful” despite inflation still exceeding the target.
Slack in the Economy Could Trigger Action
Bailey explained that the UK economy is underperforming relative to its potential. This “slack”—unused capacity such as idle workers or factories—could ease inflationary pressures. If the slack increases rapidly, it may prompt more aggressive rate cuts.
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Job Market Already Showing Signs
The UK job market is already shifting. Businesses are adjusting working hours, slowing wage growth, and reducing hiring. This trend follows Chancellor Rachel Reeves’ April move to raise employer National Insurance contributions from 13.8% to 15%, expected to bring in £25 billion annually.
Official data shows job vacancies fell to 736,000 in the three months to May, marking the lowest level since the post-Covid recovery in 2021. Simultaneously, the number of people available for work has risen sharply.
Economic Concerns Grow
Employers like MAN Commercial Protection say the NIC increase has made recruitment more difficult. CEO Ian McAllister warned, “Our big concern is a recession,” and welcomed any rate cuts. Portfolio manager Louise Dudley of Federated Hermes echoed this, saying a rate cut may happen “sooner rather than later.”
Economic Output Shrinking
The UK economy shrank by 0.1% in May, following a similar contraction in April, according to the Office for National Statistics. Weak manufacturing and sluggish retail sales were key contributors.
At its last meeting in June, the Bank of England held interest rates steady but reiterated plans for a “gradual downward path.”
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