The Governor of the Bank of England has warned Rachel Reeves’s tax-raising Budget has put jobs at risk.

Andrew Bailey said retailers were “right” to warn of potential job cuts as a result of the £40bn of tax rises in the Chancellor’s speech last month, referring to an industry-wide letter published today.

Dozens of Britain’s biggest retailers have warned Ms Reeves that her plans to hike employer National Insurance contributions (Nics) will cause staff to be laid off and shops to be shut.

Speaking to the Treasury Select Committee, Mr Bailey said: “I saw the BRC’s (British Retail Consortium’s) letter and I think they’re right to say, I think there is a risk here that the reduction in employment could be more. Yes, I think that’s a risk.”

Mr Bailey added that companies would feel more pressure on margins from the tax rises in the short term, before the effect eases.

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 profit margins over time. I would expect that.”

He added that the Bank of England will be forced to cut interest rates at a “gradual” pace as it assesses the impact of the Budget.

Mr Bailey said: “There are different ways in which the increase in employer National Insurance Contributions announced in the Autumn Budget could play out in the economy.”

He added: “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.”

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