Bank of England Governor Andrew Bailey does not expect a return to ultra-low interest rates, but he predicts that they will fall “gradually” going forward.
Bailey was speaking in an interview published by Kent Online today after the bank's Monetary Policy Committee voted last week to keep interest rates on hold at 5 percent, following a 0.25 percentage point cut in August – the first rate cut in four years. 
The move came after inflation was reported at 2.2% in August, unchanged from July and just above the Bank of England's 2% target.
“Inflation has fallen significantly. We still need to keep inflation at our target and the components of inflation are currently quite imbalanced,” Bailey said.
“But I am very encouraged that interest rates are trending downwards and therefore I think the trajectory of interest rates will be gradually downwards.”
But the bank governor is clear that he wants ultra-low interest rates to become a thing of the past.
The base rate was 0.1% in December 2021, but the MPC began its 14th consecutive rate hike, reaching 5.25% in August last year.
“I don't expect that to happen because the way interest rates have moved is due to two very large shocks to the economy, among other things,” Bailey said.
“It all started with the financial crisis and then coronavirus came as another big shock.
He added: “It would take a very big shock to get down to that level, and of course we don't want a very big shock to happen.”
“So my expectation is we'll end up with a neutral rate. What that will be will depend on a lot of things, but I expect rates to go down.”
Despite the bank keeping its policy rate unchanged last week, Western central banks have begun easing interest rates to stimulate their economies as inflation eases.
The Federal Reserve last week cut interest rates by a larger-than-usual 0.5 percentage point for the first time since July 2023, bringing them to a range of 4.75% to 5%.
Fed Chairman Jerome Powell said “strong” action was needed because inflation was easing and concerns about the job market were growing.
The European Central Bank in June cut interest rates by 25 basis points to 3.75% for the first time since September 2019, moving ahead of the Bank of England and the U.S. Federal Reserve in easing borrowing costs in the bloc.
Financial markets are fully pricing in a cut in the UK's policy interest rate at the November committee meeting, followed by a second cut in December.
