Bank of England (BoE) governor Andrew Bailey said UK is "near the top of the cycle" on interest rates even though inflation still has a long way to go.

He told the Treasury Select Committee on Wednesday: “There was a period where it seemed to me to be clear that rates needed to rise going forwards, and the question for us was how much and over what time frame.

“But we’re not I think in that place anymore and that’s why we shifted our language to being much more evidence and data-driven.”

Bailey, however, said he can’t say now how they [Monetary Policy Committee] are going to vote in two weeks time as the next rate decision date approaches, but was of the view that “we are now much closer to the top of the cycle” with regard to rate hikes.

On the question of quantitative easing (QE) going on for too long with the unwinding of it now too sharp, Bailey said that going back to that point in time, the last phase of QE, was done on risk management grounds.

“Our concern was with a lot of uncertainty around the situation with Covid, it provided a degree of insurance against volatility.”

As a result, he said, most people who gave evidence on this, would think it did not make much contribution to inflation.

He further highlighted that there is a negative cash flow at the moment and when asked about the UK being on the brink of a recession, Bailey said “we have not had the degree of shocks in the last year like we had at the beginning of the Ukraine crisis.

“Growth is just above zero, so it is a weak path of growth.”

Meanwhile, external member, Monetary Policy Committee, Dr Swati Dhingra, said the one positive news that has come from the rate rises, that is relative, between December and February, was that energy prices increased and unwound much faster than had been anticipated.

Furthermore, the markets are expecting the interest rate to go up to 6% by the end of 2024.

Sir Jon Cunliffe, deputy governor for financial stability at the BoE, said key indicators will have to be looked at and drew on lessons over the past year.

He also said he can't say at this stage how he will vote this month on rates but said economic data to come will depend partly on his decision.

Following Cunliffe’s comments, Bailey added that he believed “we are now much closer to the top of the cycle” regarding rate rises, on the basis of current evidence.

The comments were all made during a hearing based on the bank’s August Monetary Policy report and July’s Financial Stability report.

MPs are also questioning members of the Monetary Policy Committee (MPC) and Financial Policy Committee (FPC) at the meeting.

Investors will no doubt be digesting Bailey’s latest comments for clues as to which direction the BoE might take next on monetary policy.

Read more: FTSE and European stocks lower amid weak UK economic outlook

While inflation has come down from its peak of 11.1% last October, the rate of price rises remains high, adding strain to consumers struggling to keep up with bills.

As it stands, the BoE wants to get inflation down to its target of 2%. To do that, it hiked rates again last month for a 14th time in a row to 5.25% – the highest rate since the financial crash of 2008.

However, there’s concerns that higher for longer rates could tip the UK into a recession.

This morning, the British Chambers of Commerce (BCC) warned that the UK economy is set to flatline for the next six months.

However, it said the UK will avoid a recession but highlights it will feel a lot like one for millions of households.

The BCC said it expects overall growth of 0.4% for the year and also slashed its forecast for the next two years. It expects the UK economy to grow by 0.3% in 2024, rising to 0.7% in 2025.

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British construction firms also reported suffering a sharp drop in orders in August, adding to concerns about a slowing economy.

Meanwhile, UK Chancellor Jeremy Hunt, has said he’s confident the BoE’s strategy will see inflation halved by the end of the year.

The FTSE 100 (^FTSE) was trading down 0.42% at 7,406.88 points, at the time of writing, while the pound to dollar exchange rate (GBPUSD=X) was at 1.25, and against the Euro (GBPEUR=X), was at 1.16.

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