LONDON (Reuters) – The Bank of England should be able to gradually cut interest rates as it becomes more confident that inflation will stay close to its 2 percent target, its governor Andrew Bailey said in an interview on Tuesday.

The monetary policy official said he was “very encouraged” by the downward trajectory of inflation since the peak of 11.1% reached almost two years ago.

“I think interest rates will come down gradually,” he told the Kent Messenger newspaper during a visit to southeast England, adding that “inflation has come down a lot.”

“We still have to bring it sustainably to the target and we currently have a rather unbalanced mix of inflation components.”

British inflation, at 2.2% in August, remains a concern for the Bank of England because of high rates of growth in services prices and regular wages, both of which are increasing at an annual rate of more than 5%.

Andrew Bailey said he did not expect interest rates to return to the record lows near zero last seen four years ago, instead thinking they would settle at a neutral rate that he was unable to specify.

Last week, the BoE kept its main interest rate unchanged at 5% after cutting it in August to 5.25%, its highest level in 16 years.

Economists polled by Reuters expect the BoE to cut rates to 4.75% at its next meeting in November.

Last week, Andrew Bailey expressed optimism about further rate cuts, but said the cuts should be gradual and the BoE should “be careful not to cut rates too quickly or too much”.

(Reporting by Sachin Ravikumar; writing by Sarah Young and David Milliken; editing by Kate Entringer)

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