(Bloomberg) — Bank of England Governor Andrew Bailey said interest rates will likely remain below highs seen before the financial crisis, his latest indication that the Bank of England may be closing in on the end of its fastest string of hikes in three decades.

He also said the interest rate decision would not be affected by the crisis hitting the global banking system and expressed confidence that Britain would weather the storm in financial markets.

The underlying state of the UK economy suggests that “interest rates do not have to completely return to and remain at their highest levels ever,” Bailey said in a speech at the London School of Economics on Monday.

This optimism comes at the same time as the strongest indication that the central bank’s two main functions, monetary policy and financial stability, will operate separately. Investors have held off bets on further rate hikes, speculating that problems in the banking system will cause the Bank of England to cancel further rate hikes.

Bailey’s comments were based on remarks he made after the central bank raised its key interest rate by a quarter point last week to 4.25%, the highest since 2008, despite a bailout by the British unit of SVB Financial Group.

Bailey said Britain’s banking system was “resilient” enough to withstand further shocks and authorities had the right tools to support struggling institutions. That means central bank regulators can fix problems as they arise, while the Monetary Policy Committee will work to bring inflation down from double digits to a target of 2%.

“We have a strong macroprudential policy regime in this country,” said Bailey. “As the Financial Policy Committee is tasked with ensuring financial stability, the Monetary Policy Committee can concentrate on its own work of bringing inflation back to target.”

He said that “the key for the Monetary Policy Committee is to have the tools to do its job, that those tools are not limited by other factors.”

In response to questions, Bailey said: “Actually, there is no tension between the Monetary Policy Committee and the Financial Policy Committee.”

On the path of future interest rates, Bailey said he was now more cautious about providing guidance on where borrowing costs could go after the magnitude of the shock that hit Britain.

Before the pandemic, the central bank said long-term neutral interest rates had fallen permanently in a major post-financial crisis regime change. Economists assume that interest rates will therefore remain low relative to pre-financial crisis levels. However, the recent rise in inflation has challenged those assumptions as central banks have aggressively tackled the highest inflation in decades.

On the economic front, Bailey repeated the near-word-for-word comments he made last week in an interview with the BBC following the interest rate decision. The central bank, he said, will decide on interest rates based on emerging evidence, and further increases may be needed if there are signs that inflation will last longer than anticipated.

Bailey welcomed the government’s efforts to bring more workers back into the workforce, which addresses one of the main things driving up wages and prices.

He said economic growth was slightly stronger than the central bank anticipated, but wages rose slightly less than expected.

Original Notes: Bailey Suggests BOE Will Not Raise Rates Back to Pre-Crisis Highs (3)

–In collaboration with Lucy White.

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