Sep 24 2024: Bank of England Governor Andrew Bailey indicated that interest rates are likely to decrease gradually as the central bank grows more confident that inflation will remain near its 2% target, according to an interview published on Tuesday.
Bailey expressed optimism about the recent decline in inflation, which had peaked at 11.1% nearly two years ago.
“I do think the path for interest rates will be downwards, gradually,” Bailey told the Kent Messenger. He added that while inflation has dropped significantly, more work is needed to achieve the target sustainably, citing concerns about the uneven mix of inflation components.
In August, the inflation rate in Britain stood at 2.2%, but the Bank of England remains focused on controlling the rapid growth in service prices and regular wages, both rising at annual rates above 5%.
When asked where interest rates might stabilize, Bailey said he did not foresee a return to the historic lows near zero seen four years ago. Instead, he predicted rates would settle at a “neutral” level, though he did not specify what that would be.
Last week, the Bank of England left its key interest rate unchanged at 5%, following a reduction from a 16-year high of 5.25% in August. Economists surveyed by Reuters expect a further cut to 4.75% at the BoE’s next meeting in November.
Bailey noted that while he anticipates rates will continue to fall, the process would be gradual, emphasizing that the central bank must avoid cutting rates “too fast or by too much.”
During his visit to southeast England, including Dover, Bailey also commented on the economic effects of Brexit, acknowledging some short-term negative impacts on trade but expressing confidence that over time, trade will be “redirected.”
