The Bank of England is considering interest rate cuts if the job market continues to weaken, according to Governor Andrew Bailey. In a recent interview, Bailey indicated that the current base rate of 4.25% could be lowered, particularly if businesses show signs of adjusting employment levels due to rising national insurance contributions (NICs) for employers.

Chancellor Rachel Reeves increased NICs from 13.8% to 15% in April, a move expected to generate £25 billion annually. Bailey noted that companies are responding by reducing pay rises and adjusting working hours. He stated, "I really do believe the path is downward," emphasising that the UK economy is growing below its potential, which could create "slack" to help reduce inflation.

The Bank's Monetary Policy Committee will review the interest rate again on 7 August. Bailey acknowledged the challenges of cutting rates while inflation remains above target, saying, "But we continue to use the words 'gradual and careful' because... some people say to me 'why are you cutting when inflation's above target?'"

The UK economy contracted by 0.1% in May, following a similar decline in April, primarily due to a drop in manufacturing and weak retail sales. This economic performance adds pressure on the government, which has prioritised boosting growth amid rising borrowing costs and downgraded growth forecasts.

Calls for a wealth tax have emerged from some Labour Party members, including former leader Lord Neil Kinnock, to strengthen public finances. Transport Secretary Heidi Alexander stated that tax rises have not been directly discussed but did not rule them out for the autumn budget, emphasising that decisions would be based on fairness.