Bank of England governor flags 'biggest issue' in light of National Insurance hike

Bank of England governor Andrew Bailey has identified the "biggest issue in the immediate future" following the Budget's end in late October.

Bailey emphasised the importance of the business response to the government's National Insurance increase, noting that it will be significant in determining the speed of interest rate cuts next year, as reported by City AM.

At the Financial Times’s Global Boardroom Conference, Bailey remarked: "How companies balance the mixture of prices, wages, the level of employment, what is taken on margin, is an important judgement for us."

Chancellor Rachel Reeves's Budget measures included raising employers' National Insurance to 15%, and reducing the threshold at which firms start paying. The Bank's November predictions indicate that the Budget may boost inflation by about half a percentage point, although the business reaction remains uncertain.

Bailey outlined, according to the broadcast interview, that officials have proposed a "range of options" for the potential economic impact of the tax hike, "some of which would imply greater inflation and some of which would imply less inflation". He highlighted the need for businesses to determine their strategies and suggested a clearer picture would emerge come spring: "You have to give companies a chance to sort out what their strategy is going to be. As we go into spring, we will have a better sense of where it is going," he said.

The governor also reaffirmed the Bank's strategy of "gradual" interest rate reductions, citing persistent uncertainty surrounding inflation. This comes after recent data revealed inflation rose to 2.3% in October, surpassing the 2% target.