The Bank of England is expected to lower interest rates again this year, despite a surge in pay growth and an expected rise in inflation, according to Andrew Bailey.

Speaking at an event in Brussels, Bailey, the governor of the Bank of England, indicated that the institution is still poised to lower interest rates again this year.

“Pay growth went up, but actually not quite as much as we were expecting,” he said.

The Office for National Statistics (ONS) reported that regular pay growth in the private sector reached 6.2% in the final quarter of the year, marking the highest level since November 2023. However, this figure was marginally below the 6.3% forecast by analysts at the Bank of England.

UK borrowing costs were cut earlier this month, from 4.75% to 4.5%, in what could be the first of multiple interest rate cuts in 2025.

Pressure is increasing on the Bank of England to continue cutting interest rates amid growing economic concerns.

Bailey referred to the Bank’s forward-looking survey on pay pressures, which indicates that wage pressures are expected to diminish over the next year.

“One of the best anchors we have is the survey that our agents around the country do every year, and they think settlements this year are going to come down,” he explained.

The Bank of England projects that annual wage growth will decrease to 3.7% across 2025, from 5.3% for the current year.

“I don’t think we saw anything this morning that fundamentally changes that,” Bailey added.

His comments precede the release of the latest inflation figures, published this morning.

The consumer prices index (CPI) measure of inflation rose to 3% in January, the ONS reported, up from 2.5% in December.

City economists had expected inflation to rise to 2.8% in January.

Bank of England forecasters have predicted that inflation will increase to 3.7% later this year as energy prices and a series of utility bill increases add to business and household costs.

A rise in inflation will come as a blow to ministers, who were given a boost a month ago when the CPI dropped from 2.6% in November to 2.5% in December.

The Bank’s projections indicate that inflation will rise to 3.7% later in the year, primarily due to escalating energy prices.

The markets are predicting two more interest rate cuts this year.