Announcing the decision to hold rates in September – which had been widely predicted – Bank of England governor Andrew Bailey said slowing inflation meant the Bank should be able to cut interest rates gradually over the upcoming months.
But, he added, “it’s vital that inflation stays low, so we need to be careful not to cut too fast or by too much”.
The Bank also considers other measures of inflation when deciding how to change rates, and some of these remain higher than it would like.
Some parts of the economy, like the services sector – which includes everything from restaurants to hairdressers – were still seeing more significant price rises in recent months.
It has to balance the need to slow price rises against the risk of damaging the economy, and avoid cutting rates only to have to raise them again shortly afterwards.
In October, Mr Bailey said that the Bank could be a “bit more aggressive” about cutting interest rates, meaning they could fall more quickly.
However, he also said that the Bank was watching developments in the Middle East “extremely closely”, in particular any movement in oil prices which could fuel inflation.
Given the sharper than expected drop in the September inflation figure, many analysts now expect the Bank to cut rates.
