Bank of England governor backs big retail on budget jobs warning

Posted by Admin November 19, 2024 Jobs

The Bank of England governor has said industry lobby group the British Retail Consortium (BRC) was right to warn of job losses as a result of the budget.

There is a “risk” of unemployment rising due to increases in employers’ national insurance contributions and minimum wage rises announced by Chancellor Rachel Reeves last month, Andrew Bailey told MPs on the Treasury Committee.

Money blog: Inflation announcement will be bad news

In a letter to Ms Reeves, the BRC warned of items becoming more expensive and job cuts stemming from the price pressures placed on firms by the new policies.

But firms will rebuild their profit margins, according to Mr Bailey.

He said: “Probably initially there will be more pressure on firms’ margins because it takes them longer to adjust and then they’ll probably rebuild those more profit margins, that is over time”.

Having previously said the budget could cause inflation to rise, Mr Bailey on Tuesday said price increases could slow or reverse thanks to the budget policies.

Fewer jobs would reduce competition among employers for workers, something which could bring down wages.

Wage rises have been one of the factors identified by Mr Bailey as behind high inflation since the COVID pandemic.

How much will borrowing costs fall by?

A member of the Bank’s interest rate-setting Monetary Policy Committee, Professor Alan Taylor, told the MPs he expects interest rates to fall to 3.75% over the next year – down from the current 4.75%.

Interest rates could be lowered more quickly, he added, if inflation, wage growth and economic expansion are less than anticipated and unemployment ticks higher.

Why are mortgage rates going up?

When asked why typical fixed-rate mortgages have been going up in recent weeks, Mr Bailey said it was because of US political uncertainty before the election as well as the UK budget.

He pointed out that since the first interest rate cut in four years, announced in August, mortgage rates in the market have been lower.

Brexit and its hardline supporters

Echoing comments he made about Brexit and the need for increased cooperation with the European Union, Mr Bailey also levelled criticism at hardline Brexiteers.

“We should be in active dialogue with the EU,” he told MPs.

The reason there have been outcomes “better than we feared they would be in 2016-17” for the financial services sector is because of open dialogue with EU colleagues, Mr Bailey said.

“I find it hard to understand people who seem to say that we should implement Brexit in the most hostile fashion possible.”

He added: “I take no position on Brexit. I never have. I’ve always said it’s my job to get on and do it and I’ll do it in the best way possible and I think talking, having a relationship with the European Union is the better way to do it.”