Bank of England could cut base rate if jobs market continues to slow
Companies are 'also having pay rises that are possibly less than they would have been if the NICs change hadn't happened', Mr Bailey said.
In an interview with the newspaper, the governor said the British economy was growing behind its potential.
This could open up 'slack' to bring down inflation, he said, meaning prices on goods would rise less swiftly compared with earnings in future.
Mr Bailey said he believes the base rate set by the Bank of England would be lowered in future, after it was held in June.
The current Bank rate of 4.25%, which has a bearing on all lending in the UK – including mortgages – will be reviewed again on August 7 by the Bank's Monetary Policy Committee.
'I really do believe the path is downward,' Mr Bailey told The Times.
He added: '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 governor's indication that lower lending rates and reduced inflation could be around the corner comes as the Government is facing pressure to improve living standards.
Ms Reeves' tax and spend plans are also being constrained by the current borrowing costs, as well as downgraded growth forecasts.
The Chancellor's fiscal headroom has been in part eroded by U-turns on the winter fuel payment and welfare reforms, as well as global shocks to the British economy.
Some in the Labour Party, including former leader Lord Neil Kinnock and Wales's First Minister Baroness Eluned Morgan, are calling for a wealth tax to help bolster the public finances.
On Sunday, Transport Secretary Heidi Alexander said such a tax had not been 'directly' discussed when ministers held an away day at the end of last week.
But speaking to Sky News' Sunday Morning With Trevor Phillips programme, she would not rule out tax rises at the autumn budget, only saying tax decisions would be made based on 'fairness'.
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Spectator
8 minutes ago
- Spectator
The state will do anything but fix the migrant crisis
Migrant hotel protests are erupting across the country, as 'tinderbox' Britain catches fire. What began with a series of protests in Epping, Essex, over the alleged sexual assault of a teenage girl by a recently arrived Ethiopian migrant, has now spread, as Brits air long-standing grievances about asylum seekers they have been forced to host in their own communities. A powerful tendency now exists in the British state towards displacement activity Demonstrations have so far been reported in Bournemouth, Southampton and Portsmouth, Norwich, Leeds and Wolverhampton, Sutton-in-Ashfield in Nottinghamshire, Altrincham and even at Canary Wharf in London. With years of unaddressed anger rapidly making themselves felt, the police, pulled in all directions, are struggling to keep up. 'Local commanders are once again being forced to choose between keeping the peace at home or plugging national gaps', admits the head of the Police Federation. Still, it seems there is one thing the government is more than happy to devote resources to: trawling the internet for anti-migrant sentiment. The Telegraph reports that an elite team of police officers convened by the Home Office is set to monitor social media to flag up early signs of unrest. Working out of the National Police Coordination Centre (NPoCC) in Westminster the new National Internet Intelligence Investigations team will 'maximise social media intelligence' gathering in order to 'help local forces manage public safety threats and risks'. If this new division was just about intelligence-gathering that would be one thing. It's true that social media is in invaluable resource for following events on the ground at such gatherings, while local Facebook groups are often where grassroots protests are organised. Yet we know that when it comes to the British state and social media, censorship and punishment for online speech is never far behind. Ever since Sir Keir Starmer repeatedly linked the Southport unrest last year with social media, the idea has firmly taken root in Whitehall that the best way to stop unrest is to aggressively police the internet. Ofcom, the broadcast regulator, already takes this view, and the link has even been drawn in Department for Education guidance on how to talk to schoolchildren about the Southport disorder. In a recent report, the police inspectorate said that that forces must be 'better prepared and resourced to monitor, analyse, use and respond to online content', which it argues was a risk to public safety. This general zeal for social-media policing is why Big Brother Watch believes the new unit is very likely to infringe on free speech. The investigations team is 'Orwellian' and 'disturbing', says interim director Rebecca Vincent, creating the possibility that it 'will attempt to interfere with online content' as other government bodies are known to have done during Covid. As if there weren't enough threats to free speech already. This week age verification provisions in the latest stage of the Online Safety Act (OSA) kicked in, meaning that some footage of protests is now inaccessible on social media for many users. Not even parliamentary privilege is safe from the censorship regime. Katie Lam's searing April speech on the rape gangs, in which she quoted court transcripts and survivors, could not be watched on X without age verification. We are beginning to look like North Korea with rainbow flags: for the public's 'safety', footage exposing grievous failures of the British state now cannot be viewed in the UK. Little wonder, given the OSA explicitly earmarks content relating to 'child sexual abuse' and 'illegal immigration and people smuggling' as the 'kinds of illegal content and activity that platforms need to protect users from'. The Conservatives, who bequeathed us this blank cheque for digital authoritarianism, certainly need to take a long, hard look at themselves. The claims that the OSA is merely about restricting access to pornography has been exposed as a mere fig leaf. And still things could still get worse. As the Free Speech Union has noted, shortly after last year's riots, the Centre for Countering Digital Hate (CCDH), a pro-censorship lobby group with ties to Morgan McSweeney, 'hosted a closed-door meeting under the Chatham House rule to discuss the role of social media in civil unrest'. In attendance were officials from the Home Office, the Department of Science, Information and Technology, Ofcom and other organisations. The CCDH proposals that emerged included amending the OSA to 'grant Ofcom additional 'emergency response' powers to fight 'misinformation' that poses a 'threat' to 'national security' and 'the health or safety of the public''. This would give Secretary of State Peter Kyle the ability to directly flag unapproved content to be taken down at a time of 'crisis'. Should the unrest continue this could well be coming down the track. What all this illustrates is just how ill-equipped the people in charge are to deal with Britain's problems, as The Spectator's Madeline Grant noted earlier this week. A powerful tendency now exists in the British state towards displacement activity. Spin doctors 'manage' the news. Police surveil social media. The government shuffles asylum seekers from hotel to hotel, or to HMOs, or even to privately rented accommodation (which it uses your own taxes to outbid you for). For his part, the prime minister has been tweeting about the women's football. As the unrest grows, leading politicians continue doggedly insist that Britain remains a 'a successful multi-ethnic, multi-faith country'. In reality, there are answers to the asylum hotels crisis, it's just that the government simply lacks the will to act. Large numbers of illegal migrants need to be deported, while those that are here should be placed in a secure holding facility somewhere remote. What is surely obvious by now where they should not be: in hotels, in an Essex market town 500 yards from a school; on the Bournemouth beachfront; in the London's financial district; in a Leeds suburb right next to a shopping centre. As it is, however, it seems the regime will try anything and everything before addressing people's real concerns.
New Statesman
9 minutes ago
- New Statesman
Will Keir Starmer recognise Palestine?
Photo byThe image stays with you: this week it has covered the front pages of the world's newspapers. A mother, herself worn down and bruised by 21 months of conflict, cradles her child, who is swaddled in a bin bag. The child has lost a third of its body weight, it now weighs 6kg. Such images are not unique in Gaza, where starvation is general to a community after the blockade of humanitarian aid. The international community is looking on in horror, pleading with Israel to reconsider. On Sunday, the Israeli government issued a temporary reprieve allowing deliveries of aid into parts of Gaza. In the UK, there is pressure on the government to officially recognise the state of Palestine. This pressure originally mounted from the backbenches, but now, even members of the cabinet (Shabana Mahmood, Wes Streeting and Hilary Benn) are ramping up their private calls for Starmer to recognise Palestinian statehood. Over the weekend, 220 MPs from nine political parties – including 131 Labour MPs – signed a letter calling for the immediate recognition of Palestine. In the run up to the 2024 general election, the party's manifesto included a pledge to recognise a Palestinian state as a contribution towards a renewed peace process which results in a two-state solution, but a year on, and both Starmer and his Foreign Secretary, David Lammy, are yet to make good on this promise. The government's current position is that the UK will acknowledge Palestinian statehood as part of a peace process, but only at the point of 'maximum impact'. On Saturday, Starmer doubled down, rejecting renewed calls for the UK to reconsider and immediately recognise a Palestinian state, reasserting the UK's alignment with the US on this issue (a move which one cabinet minister told The Times was 'deeply inadequate'). The opportunity for Starmer to recognise the Palestinian state has presented itself more than once. Most recently, it was thought that Starmer might wait to go ahead with recognition alongside the French President, Emmanuel Macron. The UK and France argue a historical responsibility for the continuation of a Palestinian community in the Middle East, and so plenty suspected the countries would make a dual statement. But the opportunity for joint Franco-UK recognition has now passed. On Thursday 24 July, Macron announced France's intention to recognise Palestine at the upcoming UN general assembly. (Starmer, on the other hand, almost simultaneously released a statement sticking to the government line). Backbench MPs are losing their patience. Rachael Maskell, who lost the Labour whip last week following her involvement in the welfare rebellion, believes 'time is running out' for any governmental recognition of Palestine to have its desired effect. 'We should have recognised Palestine many, many years ago,' she said, 'it's been Labour party policy since 2014'. Maskell was one of 60 MPs to sign a letter to the Foreign Secretary in July calling for Palestine's immediate recognition. Ian Byrne, the Labour MP for Liverpool West Derby agreed: 'We had a vote over a decade ago about Palestine. [Recognition] was in the manifesto. What we're seeing now with the genocide, there's the political will now from all sides of the house to do something.' Byrne said now is the time for the UK to step up and take international responsibility. 'The UK has the opportunity to do the right thing. We are one of the world leaders and sometimes you need a leader to take the lead.' He criticised the government for acting 'extremely slowly' on Gaza. Even more moderate back-bench Labour MPs are ramping up the pressure on the government. One member of the 2024 intake told me, 'It's beyond horrific, we have to seriously consider our relationship with Israel.' Israel has now offered a brief cessation of its full scale aid blockade, and Lammy has said the channelling of aid into the Gaza strip must be 'urgently accelerated'. Subscribe to The New Statesman today from only £8.99 per month Subscribe No country is likely to get involved in this conflict militarily (unless a UN peacekeeping force is assembled), instead, more substantial diplomatic levers could be pulled such as suspending the UK-Israel trade agreement and imposing sanctions not only on the most outspoken ministers (as the UK has already done with Smotrich and Ben Gvir) but all Israeli political and military leaders involved in the conflict. Many Labour MPs would agree with this. Byrne called for an 'arms embargo, military cooperation to be ended, and comprehensive sanctions'. And it is not just Labour. Kit Malthouse, the Conservative MP for North West Hertfordshire said Lammy could end up in the Hague over his inaction on Gaza as he called on the government to press for an immediate ceasefire. This week the Daily Express carried a front page bearing the face of an emaciated Palestinian child crying 'enough is enough': concern over the plight of Palestinians now transcends party politics. This is unlikely to be an electoral downfall for Keir Starmer. But, with the pro-Gaza independent MPs taking seats last summer otherwise ordained for Labour, it is obvious that this is damaging to the party on its left flank. The Prime Minister may continue to prevaricate. But were we at the polls tomorrow, votes would be shed because of it. [See more: The abomination of Obama's nation] Related
Reuters
9 minutes ago
- Reuters
Bank of England poised to slow QT after rise in yields
LONDON, July 28 (Reuters) - The Bank of England is expected to soon slow the pace at which it shrinks its 558 billion-pound ($754 billion) holdings of government bonds, and economists hope next week will shed some light on its longer-term goals for the stockpile. Alongside a predicted quarter-point interest rate cut to 4%, the BoE's Aug. 7 policy statement will assess the past year's quantitative tightening, or QT, before policymakers decide in September on the pace of bond sales for the following 12 months. There is greater uncertainty over QT than usual due to recent bond market ructions and because liquidity in Britain's financial system is approaching a balanced level for the first time since before the 2008 financial crisis. Adding to the mix is political pressure over the hefty losses the BoE has made when selling bonds. "The official view from the Bank ... is that they see this as an operation that works almost in the background. But clearly it has come to their attention that they are not operating in a vacuum," said Peter Schaffrik, global macro strategist at RBC. Unlike other big central banks, the BoE's QT programme involves bond auctions as well as letting existing holdings mature. Over the past year, it has sold 13 billion pounds of gilts and let 87 billion pounds mature. Keeping up that 100 billion-pound pace for the next 12 months would require it to sell a record 51 billion pounds though, due to fewer redemptions. Schaffrik said market conditions had changed since it last sold close to 50 billion pounds of gilts, however, which was in the year to September 2024. "The market would probably take it quite negatively if they sold such a large amount," Schaffrik said. The BoE itself has said its sales so far have barely pushed up government bond yields. A BoE survey published in May showed investors mostly expected QT to slow to a yearly 75 billion-pound pace from September and to 50 billion in 2026-27 before active sales effectively end in 2028. One outlier is BNP Paribas' Europe economist Dani Stoilova, who expects the BoE to stop gilt sales from October onward to avoid impacting the market. British 30-year government bond yields hit their highest levels since 1998 in April after President Donald Trump's tariff bombshell rocked the markets and the BoE had to postpone a bond sale. Despite four BoE rate cuts over the past year, the difference between five- and 30-year gilt yields has doubled to 1.4 percentage points and the 2/10-year yield curve has steepened to 0.75 percentage points from near zero. "Active QT has never been done in this environment where Bank Rate has been falling. And so there is the potential that there are interaction effects that haven't been caught," Stoilova said. Last week BoE Governor Andrew Bailey said QT was not to blame for higher government borrowing costs. "We do need to look, however, at the interaction of those yield curve movements with the QT programme and with market functioning and with monetary policy impact," he said. The BoE might focus more on shorter-dated gilt sales or even halt sales of gilts with a maturity of 20 years or longer, former Monetary Policy Committee member Michael Saunders said. Equally, the BoE could decide that extra rate cuts are a better option, or that there is little it can do to offset the steeper yield curve, said Adam Dent, chief UK rates strategist at Santander CIB. "We believe that QT is only responsible for a small part of the steepness, so trying to use QT to control the slope should also have little lasting effect," he said. The BoE has said little about its long-term plans for its gilts. One of Bailey's original reasons for QT - which drains money from the financial system - was to lower banks' reserve holdings from excess levels. Reserves stand at around 680 billion pounds, well above the 385-540 billion-pound range bankers gave to the BoE as an estimate of the system's preferred minimum range of reserves. Once reserves hit this minimum level, the BoE might still see financial or market stability reasons to keep selling gilts and require banks to make greater use of its repos. But growing take-up of the BoE's repo operations - where banks temporarily borrow money from the BoE - suggests the floor could be nearer than the BoE thinks. "They could slow things down or feel their way to that level," Schaffrik said, noting the BoE had never given a steer on its ideal position. "But everything indicates they want to go quite a bit below it."
