March 2025 monthly update

Read our March monthly update – a roundup of the latest financial news and economic headlines.

Employment rights to be extended and toughened

The government is pushing forward with the Employment Rights Bill, which they consider the biggest upgrade to workers’ rights in a generation. It aims to address several key issues. These include reforming exploitative zero-hour contracts, making Statutory Sick Pay (SSP) a legal right for all workers, expanding parental leave, and ending fire-and-rehire practices. Labour have published the amendments to the bill in advance of the next stage of the parliamentary process.[1]

After rigorous lobbying as well as five consultations with employers and unions, ministers have not conceded on the new day-one rights. Nine million people will be protected against unfair dismissal – previously only granted after two years’ employment. Furthermore, over a million low-income workers on zero-hour contracts will have the right to a new contract, and 30,000 more parents will gain additional paternity leave rights.[2]

Unsurprisingly, reactions have been divided. Such “common sense reforms” will prevent employers from utilising “egregious tactics” to stifle workers’ voices, said Paul Nowak, General Secretary of the Trades Union Congress. Meanwhile, Jane Gratton, Deputy Director for Public Policy at the British Chambers of Commerce, deems the changes “a concern to business”.[3]

She further disavowed the amendment shortening the notice period unions must give before strike action. Similar amendments also double the period over which strikes can occur before their mandate must be renewed via a fresh ballot. Gratton does not think it is in anyone’s interests to have “a situation where it is easier and faster to end up with strike action”.[4]

If the bill passes, it will be a cornerstone piece of legislation for Prime Minister Keir Starmer’s tenure. The Labour Party believe that the proposed regulations are the best way to avoid the industrial action that has plagued services in recent times.[5]

Bank of England plans to ease leverage rules for smaller lenders

Under a new proposal from the Bank of England (BoE), banks could have as much as £70bn in deposits before facing a cap on their leverage. The retail deposits leverage ratio restricts how much lenders can borrow to fund their activities.

Since the threshold has been fixed since 2016, smaller firms have faced consequences as inflation and the overall size of the economy has risen. This £20bn increase intends to correct that by reflecting nominal GDP growth over the past nine years.[6] The government called for easing of such regulations to revitalise the country’s slowing economy. Therefore, the BoE’s planned reforms are the latest indication that rulemakers are listening.

In a consultation paper, the central bank theorised that this would help promote competitiveness in the banking sector. Although, fewer than five companies are expected to be affected by the measures. While the BoE has not revealed said firms, they are reported to be especially active in mortgages. Collectively, they represent around 9% of Britain’s real economy lending, and 3% of total leverage in the system. Moreover, they are predicted to save an estimated £130,000 per year if the proposal passes.[7]

“Guarding against excessive leverage in our banking system is essential for economic stability, but we should achieve that in a proportionate way,” stated Sam Woods, the BoE’s Deputy Governor for Prudential Regulation. His reasoning echoes views espoused by Chancellor Rachel Reeves in a major November 2024 speech. Reeves also claimed that regulators had gone too far in trying to reduce financial risk at the expense of economic growth.[8]

Inflation unexpectedly falls to 2.8%

According to the Office for National Statistics (ONS), inflation cooled to 2.8% in February. This is slightly below the 2.9% predicted by analysts. Meanwhile, core inflation, which excludes volatile areas such as energy, alcohol, and tobacco, rose by 3.5%. This figure is down from a 3.7% rise in January. The main driving forces behind the changes seem to be clothing and footwear, housing and household services, and recreation and culture.[9]

Although, services inflation held steady at 5% in February despite economists expecting a decrease to 4.9%. This is used by the Bank of England’s (BoE) interest rate-setters as a key measure of underlying price pressures. Swap market traders predict that there is a 50% chance the BoE will issue a quarter-point interest rate cut at their next meeting in May.[10] The BoE themselves, however, have stated that they will take a “gradual and careful” approach to cutting interest rates. Consequently, investors predict only two more quarter-point rate cuts this year – ending at 4%.[11]

“Our number one mission is kick-starting growth to raise living standards for working people, that is why we are protecting working people’s payslips from higher taxes,” stated Darren Jones, Chief Secretary to the Treasury.[12]

Suren Thiru, Economics Director at the Institute of Chartered Accountants in England and Wales, has a different view. Thiru commented: “February’s slowdown is a false dawn as notable near-term price rises are already baked in, with next month’s jump in energy bills and national insurance likely to push inflation perilously close to 4% sooner rather than later.”[13]