Bank of England Warns National Insurance Hike Could Stall Interest Rate Cuts

Governor Andrew Bailey highlights uncertainty over inflation as businesses face increased costs from April’s tax changes.

Chancellor Rachel Reeves announced a £25bn National Insurance hike, raising the employer rate from 13.8% to 15% and lowering the payment threshold to £5,000 annually, effective April 2025.
Bank of England Governor Andrew Bailey cautioned that businesses' responses to the tax hike, including potential price increases, could limit the central bank's ability to reduce interest rates next year.
Bailey outlined three inflation scenarios, with the most optimistic allowing for gradual rate cuts, but warned of structural economic challenges that could make inflation more persistent.
The Organisation for Economic Co-operation and Development (OECD) suggested that increased government spending in the Budget may further pressure inflation, complicating monetary policy decisions.
Businesses are reportedly implementing hiring freezes and cost-control measures in anticipation of the higher National Insurance costs, potentially impacting wages and employment levels.