Bank of England Signals Potential Rate Cuts Amid Job Market Concerns

The Bank of England is open to further cutting interest rates if the UK labour market shows signs of weakening, Governor Andrew Bailey said in a recent interview, reinforcing the central bank’s cautious approach amid ongoing economic softness.

Speaking to The Times, Bailey said he expects interest rates to continue on a “downward path,” though any adjustments would remain “gradual and careful.” The Bank’s next policy meeting is scheduled for 7 August, where rates will be reassessed.

The benchmark rate currently stands at 4.25%, following two reductions earlier this year. It influences borrowing costs for mortgages, credit cards, and savings across the country.

Labour Trends Influencing Rate Outlook

Bailey noted that the economy is currently operating below its potential, creating “slack” that could help reduce inflationary pressure. He also pointed to shifts in employment behavior, including reduced hours, slower wage growth, and signs that businesses are starting to adjust their labour plans in response to policy changes.

One key factor cited was the April increase in employers’ National Insurance contributions from 13.8% to 15%, introduced by Chancellor Rachel Reeves. The measure is projected to raise £25 billion annually and has had ripple effects on hiring and compensation practices.

Inflation vs Growth Trade-Off

Bailey acknowledged criticism over rate cuts while inflation remains above the Bank’s 2% target, but said the trajectory justifies easing. “Some people say, ‘why are you cutting when inflation’s above target?’... but I really do believe the path is downward,” he said.

The comments come as the UK economy contracted by 0.1% in May, following a similar decline in April, according to the Office for National Statistics. Weak manufacturing output and sluggish retail sales were key contributors, adding to concerns about underlying economic momentum.

With inflation cooling and signs of strain in the labour and production sectors, the Bank appears increasingly willing to loosen policy to prevent a deeper slowdown. However, Bailey reiterated that rate moves would be data-driven and measured, given the ongoing uncertainty.