The “One-Off Shock” That Stuck: How National Insurance Hikes Complicated the Rate Decision

The Bank of England’s analysis highlighted a specific villain in the economic drama: the government’s National Insurance (NICs) hike. They labeled it a “one-off shock” that restrained the fall of inflation. This bureaucratic language hides a deep frustration. The Bank is trying to lower costs with rate cuts, while the government is raising costs with taxes.
This policy clash makes the Bank’s job harder. The NICs hike increases the cost of labor. Businesses pass this cost on to consumers (inflation) or cut jobs (recession). The Bank has to navigate between these two outcomes.
By citing this shock, the Bank is subtly shifting blame. If inflation stays sticky or growth stalls, they can point to the tax hike and say, “We did our part, but fiscal policy worked against us.”
It also suggests that without this “shock,” rates might have been cut sooner or deeper. The tax hike effectively delayed the recovery.
As 2026 unfolds, the impact of this “one-off” will ripple through the economy. It is a reminder that the Bank of England is not omnipotent; it can be checkmated by the Treasury.