(Bloomberg) -- Bank of England Governor Andrew Bailey said it is too soon for the UK to declare victory in the battle against inflation and that the “last mile” will require a prolonged period of restrictive interest rates.  

“It’s the last mile which obviously is where policy is really doing the work, and we’re going to have to see policy stay restrictive,” he said Thursday in an interview with Bloomberg TV. “It’s going to have to remain restrictive to have this effect of bringing inflation down, and particularly next year.”

The remarks signal a bleak backdrop for the UK economy next year, when Prime Minister Rishi Sunak is likely to fight the next general election. The BOE raised its benchmark lending rate a quarter point to 5.25% earlier on Thursday, warning that households and businesses should expect high borrowing costs to linger for the foreseeable future.

The governor also was trying to tamp down market speculation that the BOE is near finished with its longest tightening cycle in three decades and may prepare to cut rates. At a press conference earlier in the day, Bailey said it’s “far too soon to speculate” about lower rates.

In the Bloomberg interview, Bailey also said it’s “far too soon” to declare victory on inflation but added that he is “much more confident” that it’s “on the downslope.”

“What I see is much more solid evidence that it’s coming down,” he said. 

The BOE’s bias toward further tightening may unravel rapidly in the six weeks before the next rates decision on Sept. 21. By the time policy makers announce their next decision, they’ll have two batches of labor market and inflation data from the Office for National Statistics.

There’s a growing expectation that those reports will confirm a sharp slowdown in the Consumer Prices Index, which the BOE expects to drop to 4.9% this year from the latest reading of 7.9%, and also in wages, which at 7.3% are growing much faster than the BOE’s comfort level. Lower results on both measures would allow the BOE to talk more openly about when its tightening cycle will finish.

The Monetary Policy Committee kept more rate hikes on the table by repeating guidance that more tightening in policy would be needed “if there were to be evidence of more persistent pressures.” Bailey reiterated that warning, saying “If I’m afraid we get news going the other way, then of course we will have to respond.”

While markets pared back their rate bets following the decision, they’re still almost fully pricing in another quarter point increase at the next meeting in September. Investors expect rates to peak at around 5.75%.

The MPC warned that some of the risks around rapid wage growth are crystallizing but also stressed that the impact of previous rate rises will build in the coming quarters.

The BOE expects inflation to fall to below 5% in the fourth quarter of this year, suggesting Sunak will meet his key pledge to halve price growth in 2023. However, the new forecasts also pointed to anemic growth over the coming years and for slightly stronger inflation in the medium term.

Thursday’s decision highlighted a split at the BOE over how to tackle the worst cost of living crisis for generations. Two members of the nine-member committee — Catherine Mann and Jonathan Haskel — voted for a half-point hike, while another external rate-setter, Swati Dhingra, backed a pause in hikes. Six policymakers, including Bailey and his deputies, backed the quarter point increase.

Speaking to CNBC, Bailey said the BOE is “in the same place” as the Federal Reserve and European Central Bank in the battle to curb inflation despite sticker price pressures in the UK.

“I would start by pointing to the fact that we’ve used the word restrictive in terms of how policy we now think is operating,” he said in an interview with CNBC. “We’re all in the same place really that we’re now seeing, as monetary policy always operates with a lag, that effect of policy coming through and that’s good.”

--With assistance from Andrew Atkinson and Eamon Akil Farhat.

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