The Bank of England is prepared to implement deeper interest rate cuts if signs of a weakening job market persist, Governor Andrew Bailey has said, reinforcing expectations of a potential reduction at the central bank’s next policy meeting on August 7.
Speaking in an interview with The Times, Bailey emphasized that “the path is downward” for interest rates, which currently stand at 4.25%. His comments come amid growing concerns over slack in the UK economy and a cooling labour market, factors that could ease inflationary pressure.
Recent data suggests the UK job market is softening. Job vacancies fell to 736,000 in the three months to May, their lowest since the pandemic’s peak in 2021. At the same time, a surge in the number of people available for work, the fastest since COVID, has been reported by a joint survey from KPMG and the Recruitment and Employment Confederation.
Bailey noted that businesses are beginning to respond to economic pressures by reducing working hours and moderating wage increases, a shift that has followed April’s hike in employers’ national insurance contributions, from 13.8% to 15%, introduced by Chancellor Rachel Reeves. The move is expected to generate £25 billion annually.
The governor defended the Bank’s cautious approach, saying: “We continue to use the words ‘gradual and careful’ because some people say to me, ‘why are you cutting when inflation’s above target?’”
Despite inflation remaining above the Bank’s 2% goal, economists widely expect a rate cut next month, particularly following economic data showing the UK economy contracted by 0.1% in May, marking a second consecutive monthly decline, driven by falling manufacturing output and weak retail sales.
Louise Dudley, a portfolio manager at Federated Hermes, told BBC Radio 4’s Today programme that Bailey’s remarks indicate a rate cut could happen “sooner rather than later.”
Interest rates were held steady in June, following two earlier cuts this year, but Bailey reaffirmed that the Bank intends to follow a “gradual downward path” to support economic recovery while managing inflation risk.
Written By Rodney Mbua
