London: The Bank of England is poised to execute more significant interest rate cuts if the UK labour market continues to show signs of weakening, Governor Andrew Bailey has revealed.
Bailey remarked that, “I really do believe the path is downward. The benchmark rate, which stands at 4.25 percent, will be reviewed at the next Monetary Policy Committee (MPC) meeting on August 7. Economists widely expect a cut, following two reductions earlier this year.
Interest rates play a crucial role in determining the cost of borrowing and savings for millions across the UK, affecting mortgages, credit cards, and investment returns.
Bailey highlighted growing signs of slack in the economy, suggesting the UK’s growth is lagging behind its potential output. Bailey noted that businesses are increasingly adjusting employment and hours and offering more modest pay increases in response to fiscal changes, including the rise in employers’ national insurance contributions from 13.8 percent to 15 percent in April. The policy shift, introduced by Chancellor Rachel Reeves, is forecast to generate £25bn ($33.6 billion) annually.
Recent labour market data reinforces this trend. Job vacancies fell to 736,000 in the three months to May, the lowest level since the pandemic-induced slowdown in 2021. At the same time, the pool of available workers surged at its fastest pace since COVID, according to a report from KPMG and the Recruitment and Employment Confederation.
While inflation remains slightly above the Bank’s 2 percent target, Bailey maintained that future decisions would continue to be gradual and careful. Bailey acknowledged ongoing public concern about rate cuts with lingering inflation but reiterated that loosening monetary policy is appropriate given the evolving economic context.
The Bank of England last held rates steady at its June meeting but is increasingly expected to resume cuts in the coming months as the central bank seeks to balance inflation control with economic support.
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