In an interview with the Times, Andrew Bailey said “I really do believe the path is downward” on interest rates.

Interest rates currently stand at 4.25% and will be reviewed at the Bank’s next meeting on 7 August, when many economists expect the rate will be cut.

They affect mortgage, credit card and savings rates for millions of people.

Speaking to the Times, Mr Bailey said the UK’s economy was growing behind its potential, opening up “slack” that would help to bring down ­inflation.

The governor said there were consistent signs that businesses were “adjusting employment and hours” and were giving smaller pay rises following UK Chancellor Rachel Reeve’s move to increase employers’ national insurance contributions.

Reeves raised national insurance rates for employers from 13.8% to 15% in April this year, in a move the government estimated would generate £25bn a year.

The latest official figures show the number of job vacancies in the UK has dropped to 736,000 over the three months to May – its lowest level since 2021 when firms had halted hiring during the Covid pandemic.

Meanwhile, the number of people available for work has jumped at its fastest pace since the pandemic, according to a survey from auditor KPMG and the Recruitment and Employment Confederation trade body.

“I think the path [for interest rates] is down. I really do believe the path is downward,” the governor said.

“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?”‘ he added.

Louise Dudley, portfolio manager at investor Federated Hermes, told the BBC’s Today programme that Mr Bailey’s comments suggested a rate cut was likely “sooner rather than later”.

Interest rates were left unchanged during the Bank’s last meeting in June, following two cuts earlier in the year.

During that meeting, Mr Bailey also said interest rates would take a “gradual downward path”.

The UK economy contracted by 0.1% in May, after also shrinking in April, according to the Office for National Statistics (ONS).

The unexpected dip was mainly driven by a drop in manufacturing, while retail sales were also “very weak”, said the ONS.