BoE governor Bailey expects rates to fall further as inflation slows

Bank of England governor Andrew Bailey on Tuesday predicted that interest rates will settle at a "neutral rate", with inflation having come down "a long way".

Speaking to KentOnline, the governor said he was "very encouraged" by the recent slowdown in price growth, with consumer price inflation having fallen to a year-on-year rate of 2.2% in August, from its most recent peak of 11.1% in late-2022.

“We still have to get [inflation] sustainably at the target and we have quite an unbalanced mix of components of inflation at the moment. But I'm very encouraged that the path is downwards therefore I do think the path for interest rates will be downwards, gradually," Bailey said.

Asked whether interest rates would return to near zero, akin to levels seen between 2020 and 2022, Bailey said it was unlikely: “My answer is I would not expect that because what caused interest rates to go that way it was, amongst other things, two very big shocks to the economy. It all started with the financial crisis then Covid was another big shock."

He added: “To go back down to those levels, you'd have to have very big shocks. Of course, you don't want very big shocks to happen. That's one way of saying my best guess will be it settles at a neutral rate – quite what that will be depends on a lot of things – but I expect rates to come down.”