Business reaction to the budget is the “biggest issue” facing the Bank of England, according to its governor – while he also contemplates the impact of Donald Trump’s looming return to the White House.  

Andrew Bailey told an event the future was clouded by domestic and global “uncertainty”, making it difficult to predict the effect on the UK economy, particularly around inflation.

He was speaking at the Financial Times’ Global Boardroom just a fortnight before the Bank is due to make its next interest rate decision.

The prospects for a third cut this year are grim, with financial markets betting there will be no change.

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All the mood music coming from Mr Bailey and his fellow rate-setters over the past few weeks has been cautionary, with the bulk of public commentary talking of the need for a “gradual” approach.

The Bank is worried by a recent surge in inflation that has taken the rate back above its 2% target.

Forecasts suggest it will keep going up in the coming months, towards 3% from 2.3% currently, amid renewed pressure from energy and services costs.

Another headwind is the pace of wage growth which, the Bank fears, will stoke inflation by boosting demand in the economy.

Mr Bailey said it was not yet clear what effect the hike to employer National Insurance contributions, announced in the budget and set to take effect in April, would have.

“I think the biggest issue now in the immediate future is the response to the National Insurance change; how companies balance the mixture of prices, wages, the level of employment, what is taken on margin, is an important judgement for us,” he said.

The budget raised employers’ National Insurance contributions by 1.2 percentage points to 15% and also lowered the threshold for when firms start paying to £5,000 from £9,100 per year.

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Businesses have responded by claiming it will hit wage settlements, investment and jobs.

They have also warned that the cost increases will be passed on to customers, potentially stoking inflation.

The retail sector alone says it faces an additional £7bn burden in 2025 from the changes while hospitality expects a £3.5bn hit. Both are major employers.

While weaker pay settlements could help the Bank bring down borrowing costs through interest rate cuts, policymakers will be worried about the threat of higher prices in shops, bars and restaurants.

Mr Bailey said the Bank had laid out a “range of options” analysing the potential economic impact, “some of which would imply greater inflation and some of which would imply less inflation”.

“So there is uncertainty there and we need to see how the evidence evolves,” he said.

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The other global pressure he spoke about was the impact of the Trump presidency from late January.

The governor said the Bank was analysing the possible effects of threatened trade policies on the UK.

Mr Trump has warned of tariffs covering all US imports as part of his agenda to protect US industry and jobs.

Mr Bailey said of such a scenario that it clearly “moves trading prices but it also depends on how other countries react to them, and how exchange rates react to them as well”.

He did not disagree, in an FT interview, that further interest rate cuts could be expected next year.

Financial markets are expecting up to four, barring any further shocks.

Mr Bailey described the process of falling inflation as being “well embedded”.

The first three railway companies to be nationalised have been named as part of the new Labour government’s plan to bring rail into public ownership.

In May the service from London’s Waterloo station to southwest London, South Western Railway, will become the first to be nationalised, the Department for Transport said.

It will be followed by the London to Essex route c2c in July and east coast operator Greater Anglia in autumn, the department said.

Taking the businesses out of private ownership will reduce delays and cancellations that have plagued rail services across Britain, the government said, in turn encouraging more people to take the train.

It hopes £150m will be saved by passenger fares going to services rather than company shareholders.

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The pledge was a key point of differentiation between Labour and the Conservatives during the election campaign.

Services are currently contracted out, meaning companies such as Italy’s primary operator Trenitalia bid to run services.

Under the new system, taxpayers will not have to compensate firms for terminating their contracts.

Eventually, all companies will come under the auspices of a new state-owned company called Great British Railways.

This rail nationalisation process is expected to be completed over the next three years, according to the Department for Transport.

Of 14 train operating companies to be taken over by the government, four are already under state control having been put under special administration for poor services.

Not all train services will become public with services such as the Heathrow, Stansted and Gatwick Expresses remaining in private hands.

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In total, there are 28 British rail operators.

Transport Secretary Heidi Alexander told Sky News privatisation has not worked due to “huge fragmentation” under the system with a “dizzying array of private companies”.

“Financial incentives are misaligned, and there’s no real overarching direction. And so I think as a result of that, no one’s in control,” she added.

When asked, she did not say rail fares would come down under nationalisation.

It’s Ms Alexander’s fourth day on the job after the shock resignation of former transport secretary Louise Haigh.

She resigned after Sky News revealed she pleaded guilty to an offence related to incorrectly telling police that a work mobile phone was stolen in 2013.

Woodbridge is the place to be for residents wanting to live the happiest life, according to new research.

The market town in Suffolk topped Rightmove’s annual list of the happiest places to live in Britain for the first time after knocking London’s Richmond upon Thames off the top spot.

Residents of Woodbridge gave high scores for feeling that they are able to be themselves in the area, the community spirit and friendliness of the people, and access to essential services such as doctors or schools.

Richmond upon Thames came in second, while Hexham, in Northumberland, nabbed third.

Woodbridge mayor councillor Robin Sanders said: “The happy mood of residents is a reflection of the vibrant town centre.”

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More than 35,000 people across Britain completed the Rightmove study, with residents asked questions such as how proud they feel about where they live, their sense of belonging, public transport and whether they earn enough to live comfortably.

According to the property portal, Monmouth is the happiest place to live in Wales, while Stirling was top in Scotland.

Feeling proud to live in an area was the main factor in overall satisfaction, Rightmove said, while living near family and friends was the smallest driver.