In statements to The Times today, Bailey acknowledged signs that companies are “restricting employment” following the government’s decision to increase employer contributions to social security.
The UK Finance Minister, Rachel Reeves, raised the social security contribution last April from 13.8% to 15%, aiming to generate an additional 25 billion pounds (28.75 billion euros) annually.
“I think the trend is downward,” he said regarding interest rates, which will be reviewed at the upcoming meeting of the monetary policy committee of the UK central bank on August 7.
“But we continue to use the words ‘gradual and careful’ because… some people ask me: ‘Why are you cutting when inflation is above target?'” he added.
Annual inflation in the UK is currently at 3.4%, above the central bank’s target of 2%.
The governor emphasized that the increase in social security contributions significantly impacted workforce reduction.
He added that companies are “adjusting employment and hours, and potentially with lower wage increases than there would have been in the absence of the change in social security contributions.”
