The Bank of England governor Andrew Bailey has warned there is a “risk” of unemployment increasing due to the effects of the recent Budget.

Bank of England and Duke of Wellington statue

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The Bank of England

Chancellor Rachel Reeves announced last month that there will be increases in employers’ national insurance contributions and minimum wage rises.

Bailey told MPs on the Treasury committee that this poses the risk of further unemployment and said the British Retail Consortium (BRC) was right to warn of job losses.

This week, more than 80 retail leaders, including bosses from Currys, Amazon, Boots and Marks & Spencer, signed a letter authored by the BRC urging the government to phase in the changes to national insurance.

In the letter to the chancellor, the BRC warned of products becoming more expensive and job cuts arising from price pressures on retailers following the new policies.

While job losses may happen, Bailey also said firms are likely to rebuild profit margins in the long term.

He said: “Probably initially there will be more pressure on firms’ margins because it takes them longer to adjust and then they’ll probably rebuild those more profit margins – that is, over time”.

He also said price increases could slow or reverse due to the new policies, after previously saying the Budget could cause a rise in inflation.

Job losses would also bring down inflation and wages due to reduced competition among employers for workers. Bailey previously highlighted wage increases as a reason behind high inflation after the  Covid-19 pandemic.

Interest rates are also expected to fall to 3.75% over the next year, down from 4.75%

MPs were told interest rates could be lowered quicker if inflation, wage growth and economic expansion are less than expected and unemployment rises.