MercoPress. South Atlantic News Agency

Bank of England ready to make larger interest rate cuts if UK economy shows signs of slowing down

“I really do believe the path is downward” on interest rates, Mr, Bailey was quoted in The Times. BoE will review rates at the Bank's next meeting on 7 August

The Bank of England is prepared to make larger interest rate cuts if the job market shows signs of slowing down, Governor Andrew Bailey told The Times in an interview. “I really do believe the path is downward” on interest rates, Mr Bailey was quoted..

Interest rates currently stand at 4.25% and will be reviewed at the Bank's next meeting on 7 August, when many economists expect the rate will be cut.

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

The interview with the Bank of England Governor follows on the Chancellor Rachel Reeves public disappointment with the UK’s economy performance after figures showed it shrank unexpectedly in May.

The economy contracted by 0.1%, the Office for National Statistics (ONS) said, after also shrinking in April.

The fall in economic output, which confounded analysts who had expected to see slight growth, was mainly driven by a drop in manufacturing, the ONS said, while retail sales were “very weak”.

The weaker than expected figure adds pressure on the government which has made boosting economic growth a key priority.

However Mr. Bailey said that at the BoE, “we continue to use the words 'gradual and careful' because... some people say to me, 'why are you cutting when inflation's above target?“'

He said the UK's economy was growing behind its potential, opening up ”slack“ that would help to bring down inflation.

Slack refers to the amount of unused resources in an economy, such as working factories that are not producing anything or people who cannot find a job.

”If we saw the slack opening up much more quickly, that would lead us to a different conclusion,“ he said.

The governor said there were consistent signs that businesses were ”adjusting employment and hours” and were giving smaller pay rises following UK Chancellor Reeves' move to increase employers' National Insurance contributions (NIC).

Reeves raised NICs for employers from 13.8% to 15% in April this year, in a move the government estimated would generate £25bn a year. The latest official figures show the number of job vacancies in the UK has dropped to 736,000 over the three months to May,its lowest level since 2021 when firms had halted hiring during the Covid pandemic.

Meanwhile, the number of people available for work has jumped at its fastest pace since the pandemic, according to a survey from auditor KPMG and the Recruitment and Employment Confederation trade body.

The government has put a lot of emphasis on the UK being the fastest growing economy in the major G7 countries, with 0.7% growth in the first three months of the year outpacing that of Canada, France, Germany, Italy, Japan and the US.