BoE signals bigger rate cuts on jobs slowdown

July 14, 2025 (MLN): The Bank of England is prepared to make deeper interest rate cuts if the UK job market continues to show signs of slowing down, Governor Andrew Bailey has said.

In an interview with The Times, Bailey stated, "I really do believe the path is downward" on interest rates.

Currently standing at 4.25%, the rate will next be reviewed at the Bank’s meeting on 7 August, where many economists anticipate a cut.

Interest rates directly affect mortgage, credit card, and savings rates for millions of people.

Speaking to The Times, Bailey reiterated, "I think the path [for interest rates] is down," but emphasized a "gradual and careful" approach.

He acknowledged concerns about cutting rates while inflation remains above target, explaining that the UK economy is growing below its potential, creating "slack" that helps reduce inflation.

Slack refers to unused economic resources, such as idle factories or unemployed workers.

Bailey added, "If we saw the slack opening up much more quickly, that would lead us to a different conclusion."

The governor highlighted consistent signs that businesses are "adjusting employment and hours" and issuing smaller pay rises, as BCC reported.

These developments follow Chancellor Rachel Reeves' decision in April to raise employers’ National Insurance contributions (NIC) from 13.8% to 15%, projected to generate £25bn annually.

Latest figures show job vacancies in the UK fell to 736,000 over the three months to May, the lowest since 2021.

Meanwhile, the number of people available for work rose at its fastest pace since the pandemic, according to a survey by KPMG and the Recruitment and Employment Confederation.

Ian McAllister, CEO of MAN Commercial Protection, told the BBC’s Today programme that the NIC increase had made hiring "challenging", adding, "Our big concern is a recession" and that a rate cut is "obviously a benefit to all of us".

Louise Dudley, portfolio manager at Federated Hermes, told Today that Bailey's remarks suggest a rate cut could come "sooner rather than later".

The Bank left rates unchanged at its June meeting, after two earlier cuts in the year.

At that meeting, Bailey also forecasted a "gradual downward path" for rates.

The UK economy shrank by 0.1% in May after a contraction in April, according to the Office for National Statistics (ONS).

The decline was driven by falling manufacturing output and "very weak" retail sales, the ONS said.

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