The governor of the Bank of England said industry lobby group the British Retail Consortium (BRC) was right to warn of job losses resulting from the Budget.
There is a “risk” of rising unemployment due to increases in employers’ national insurance contributions and increases to the minimum wage announced by Chancellor Rachel Reeves last month, Andrew Bailey told MPs at the Treasury Committee.
Money blog: the announcement of inflation will be bad news
In a letter to Mrs ReevesThe BRC warned of items becoming more expensive and job losses resulting from pricing pressures placed on businesses by the new policies.
But businesses will rebuild their profit margins, according to Mr Bailey.
He said: “Initially there will probably be more pressure on companies’ margins because it will take them longer to adapt and then they will probably build back up those extra profit margins, i.e. over time.”
Having previously said the the budget could cause an increase in inflationMr. Bailey said Tuesday that price increases could slow or reverse thanks to fiscal policies.
Fewer jobs would reduce competition among employers for workers, which could drive down wages.
Wage increases were one of the factors identified by Mr Bailey as causing high inflation since the COVID pandemic.
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How much will borrowing costs go down?
A member of the Bank’s Monetary Policy Committee, Professor Alan Taylor, told MPs he expects interest rates to fall to 3.75% over the next year – from 4. 75% currently.
Interest rates could be cut more quickly, he added, if inflation, wage growth and economic expansion are lower than expected and unemployment rises.
Why are mortgage rates increasing?
Asked why fixed rate mortgages have increased in recent weeks, Mr Bailey said it was due to US political uncertainty ahead of the election as well as the UK budget.
He stressed that since first interest rate cut in four yearsannounced in August, mortgage rates in the market have been lower.
Brexit and its diehard supporters
Echoing comments he made Regarding Brexit and the need for greater cooperation with the European Union, Mr Bailey also criticized Brexit hardliners.
“We should engage in active dialogue with the EU,” he told MEPs.
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The reason the financial services sector’s performance was “better than we feared in 2016-17” was due to open dialogue with EU colleagues, Mr Bailey said.
“I find it hard to understand people who seem to be saying we should implement Brexit in the most hostile way possible.”
He added: “I take no position on Brexit. I never did it. I have always said that it is my job to do it and that I will do it in the best way possible and I think that talking, having a relationship with the European Union is the best way to do it.