The Bank of England governor has supported retailers' warnings that tax increases announced in Rachel Reeves's first Budget could lead to significant job losses across the sector.

Speaking to the Treasury select committee on Tuesday, Andrew Bailey said retailers were "right" to warn of potential job cuts following the £40 billion tax increase package, which included a £25 billion rise in employer national insurance contributions.

"I think there is a risk here that the reduction in employment could be more than predicted. Yes, I think that's a risk," Bailey told MPs, suggesting job losses could exceed the government's official forecast of 50,000 positions.

Almost 80 major retailers, including senior figures from Tesco, Greggs, H&M, B&Q and Specsavers, signed a letter to the chancellor warning that the combined impact of new policies would cost the sector £7 billion and make "job losses inevitable, and higher prices a certainty".

The British Retail Consortium, which coordinated the letter, estimates retailers face a £2.3 billion bill from April due to the increase in employer national insurance contributions from 13.8 per cent to 15 per cent, alongside a reduction in the earnings threshold from £9,100 to £5,000.

Bailey indicated that the Bank's monetary policy committee would continue to reduce interest rates gradually from their current level of 4.75 per cent to assess the impact of the tax changes. "A gradual approach to removing monetary policy restraint will help us to observe how this plays out, along with other risks to the inflation outlook," he said.

The Treasury defended its position, stating: "With our public services crumbling and an inherited £22 billion fiscal black hole from the previous government, we had to make difficult choices to fix the foundations of the country and restore desperately needed economic stability to allow businesses to thrive."

The spokesperson added that more than half of employers would either see a cut or no change in their national insurance bills, while £22.6 billion would be allocated to the NHS, and workers' payslips would be protected from higher tax.

The changes are set to come into force next April, alongside a significant increase in the national minimum wage, which retailers claim will cost them an additional £2.7 billion.

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