Bank of England’s Bailey Indicates Gradual Decline in Interest Rates, According to Reuters

LONDON – Bank of England Governor Andrew Bailey expressed optimism about the possibility of gradually lowering interest rates as confidence grows that inflation will stabilize near the 2% target. In a recent interview, he noted a significant decrease in inflation since it hit a peak of 11.1% nearly two years ago.

"I do believe that the path for interest rates will be downward, gradually," Bailey shared, emphasizing the progress made in reducing inflation levels. However, he also mentioned the need to sustainably achieve the target, citing concerns about the current imbalance in inflation components.

As of August, British inflation stood at 2.2%, but the central bank remains wary due to robust increases in service prices and wages, both of which are rising at an annual rate exceeding 5%.

When asked about the future direction of interest rates, Bailey indicated that he does not foresee a return to the historically low levels seen four years ago, suggesting instead that rates will likely settle around a neutral point, though he could not provide a specific figure.

Recently, the Bank of England maintained its main interest rate at 5%, having previously decreased it from a 16-year high of 5.25% in August. Economists anticipate a potential rate cut to 4.75% in the upcoming meeting next month.

Bailey reiterated his cautious optimism regarding further rate reductions, underscoring the importance of proceeding gradually to avoid cutting too quickly or excessively.

During his visit to southeast England, which included the port of Dover—an essential route for freight and passenger travel between Britain and Europe—Bailey addressed concerns regarding the economic effects of Brexit. He acknowledged that while there may be some immediate challenges to trade, he believes it will eventually be redirected over the long term.