The Bank of England (BoE) is ready to lower interest rates further if the UK job market begins to show clear signs of slowing down, according to governor Andrew Bailey.

Speaking in an interview with The Times, Bailey expressed a cautious yet optimistic outlook, suggesting that “the path is downward” for interest rates, currently set at 4.25%.

While the next Bank of England meeting is scheduled for 7August, with many economists expecting a rate cut, the central bank’s stance remains "gradual and careful" as inflation remains above target.

Bailey said the UK's economy was growing behind its potential, opening up "slack" that would help to bring down ­inflation.

He said: “If we saw the slack opening up much more quickly, that would lead us to a different conclusion.

“I think the path [for interest rates] is down. I really do believe the path is downward but we continue to use the words ‘gradual and careful’ because … some people say to me, ‘Why are you cutting when inflation’s above target?'"

Slack refers to the amount of unused resources in an economy, such as working factories that are not producing anything or people who cannot find a job.

Bailey's comments come amid growing market speculation, with investors now pricing in an 85% chance of a rate cut, up from 76% just a week earlier.

The City is anticipating a 0.25 percentage point reduction, which would bring the BoE’s key interest rate down to 4%, but market analysts are keeping a close eye on upcoming data, particularly inflation and employment figures.

Victoria Scholar, head of investment at Interactive Investor, noted that the weak GDP figures, coupled with deteriorating jobs data, strengthen the case for a rate cut in August.

“Friday’s disappointing GDP figures, combined with these weak jobs figures boost the case for the Bank of England to cut interest rates in August. The central bank’s governor Andrew Bailey told The Times ‘slack’ was opening up in the labour market, and he believes ‘the path is downward’ for interest rates.

“All eyes are on Wednesday’s inflation report with CPI expected to remain at remain around 3.4% in June, roughly unchanged for the third consecutive month.”

Enrique Diaz-Alvarez, chief economist at Ebury, said the upcoming employment data could provide crucial insights into the health of the UK economy.

“Thursday's publication of the May/June employment data is critical, perhaps even more so than Wednesday’s inflation report, which is expected to show little change from the previous month. By Thursday afternoon this week we, and the Bank of England for that matter, should have a clearer view of the extent of weakness in UK economic data.