𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

Bank of England governor Andrew Bailey has cautioned over growing evidence that employment tax hikes are hitting pay and jobs rather than leading to price hikes, but said there is greater “uncertainty” over the outlook for inflation.

Speaking at the British Chamber of Commerce annual conference in London, Mr Bailey said firms are responding to the national insurance contributions (NICs) rise for employers in April.

He said while it could see firms pass on the higher wage bills to customers through prices, “I am beginning to hear a bit more evidence of adjustments through pay and employment”.

However Mr Bailey said the recent spike back up in inflation, which stood at 3.4% in May, “introduces some further uncertainty into the near-term outlook” for price rises.

He said policymakers still need to “squeeze out” stubborn inflation, with recent surges in food costs in particular being watched by the Bank closely.

The Bank held interest rates at 4.25% earlier this month, having voted for a cut in May.

Mr Bailey said: “While the significant progress we have made on disinflation has allowed us to cut Bank Rate, we retain a restrictive monetary policy stance to squeeze out remaining persistence in inflationary pressures.”

Many economists expect the Bank to cut again in August when it will have its next set of quarterly forecasts.

Mr Bailey added: “Overall, interest rates remain on a gradual downward path.

“But monetary policy is not on a pre-set path, and at the June meeting, there was not a strong enough case to cut Bank Rate.

“As we meet for our August meeting in a few weeks’ time, we will assess the situation afresh.”

He said there are signs Britain’s labour market is cooling, after recent official figures showed the number of people on payrolls dropped by more than 100,000 during May.

“The labour market has been very tight in the past few years. But we are now seeing signs that conditions are easing,” he said.

While wage growth continues to outstrip inflation, Mr Bailey said the “latest data on pay settlements and pay expectations point to a significant decline in wage growth in the year ahead”.

But “normalisation” of salary growth “still has some way to go” in helping inflation get back to the Bank’s 2% target, according to Mr Bailey.

He also said that following a strong start to the year for the economy, the Bank believes “the UK economy will grow at a more moderate pace over the coming quarters”.