ISTANBUL

The Bank of England (BoE) Governor Andrew Bailey said Tuesday that the policy rate is on a downward trend, although policy currently remains restrictive.

Bailey said the bank sees signs of a softening in the economy and there are similar signals in the labor market.

"We are going to have to see those come through into the prices though," he said at a European Central Bank forum in Portugal.

Bailey said the recent rise in inflation in the UK was mainly in items that the bank characterizes as ”administered prices" and did not give a meaningful signal about the overall state of the economy.

He noted that he was cautious about the expectations for the level to which the policy rate could be lowered in the cycle.

"There is a huge uncertainty around it (rates). What we spend our time looking at is how restrictive the monetary policy is both now and going forwards. Our staff is doing a huge amount of work on that front to judge the restrictiveness of the policy in the current content and how restrictive it's going to be going forwards," said Bailey. "The policy remains restrictive and it will continue to be restrictive. Although the level of restrictiveness will come down over time.”

Bailey emphasized he expects monetary policy tightening to eventually come down to close to “neutral,, but all the assessments should be made in the current context.

His remarks followed the BoE's decision to leave the policy rate unchanged at 4.25% in its June meeting.

The move came after four rate cuts since the bank began reducing borrowing costs last August. The bank rate is currently at its lowest since February 2023, when it was 4%.​​​​​​​