National Insurance increases to lead to fewer jobs and lower wages: Bank of England Governor
The increase in employer National Insurance contributions is set to have knock-on effects across the UK’s economy, says Bank of England Governor Andrew Bailey.
Speaking at the British Chamber of Commerce’s 2025 Global Annual Conference on Thursday (June 26), Bailey said that there are several ways this increase in employment costs could play out.
“It could be absorbed by firms, either in lower profit margins or through productivity improvements; it could be passed on to customers through higher prices; it could be reflected in lower wages; or it could lead firms to reduce employment,” he said.
“When we ask businesses, they tend to tick all the boxes. That is understandable. Firms’ margins are the first to adjust. But I am beginning to hear a bit more evidence of adjustments through pay and employment.”
With moderate growth and a softer labour market, a wider margin of slack in the UK economy will support continued disinflation in the domestic economy and a gradual return of headline inflation to the 2% target as the country looks beyond the near-term increase, Bailey said.
“In recent months, the evidence that slack is opening up has strengthened, especially in the labour market. But there remain uncertainties around the overall balance between supply and demand in the economy, as well as the remaining inflation persistence in the system,” he said.
Looking ahead
When the Bank of England’s Monetary Policy Committee convenes for its August meeting in a few weeks’ time, it will assess the situation afresh, Bailey said.
“Monetary policy needs to continue to remain restrictive for sufficiently long until the risks of inflation returning sustainably to the 2% target in the medium term have dissipated further.
“In an unpredictable world, low and stable inflation matters more than ever, because that, alongside the supportive initiatives being pursued by the government, enables businesses and households to plan ahead and invest, a key foundation for sustainable growth in the UK economy.
“Low and stable inflation is the best contribution monetary policy can make to growth and prosperity in the United Kingdom,” he said.
