The Governor of the Bank of England explained in an interview published on Tuesday that the central bank may be in a position to gradually lower interest rates, as confidence grows that inflation will remain close to the 2% target.
He expressed optimism due to the significant decline in inflation since it peaked at 11.1% nearly two years ago, adding that the path for interest rates seems to be heading downwards gradually.
Inflation in the UK stood at 2.2% in August; however, the central bank remains concerned about the rising costs of services and regular wages, both of which are growing at an annual rate exceeding 5%.
Looking at the future of interest rates, he indicated that he does not expect them to return to the historically low levels near zero that were seen four years ago, and predicted that they would settle at a “neutral” rate that he could not specify precisely.
Last week, the Bank of England decided to keep the main interest rate unchanged at 5%, after reducing it from a 16-year high of 5.25% in August. Analysts expect the bank to cut the rate to 4.75% at its upcoming meeting in November.
Despite the Governor’s optimism about further rate cuts, he emphasized the need for these reductions to be gradual to avoid any excessive or rapid cuts that could negatively impact the economy.
