(Bloomberg) -- Bank of England Deputy Governor Dave Ramsden signaled that the latest market path for interest rates is too loose to get inflation back to target sustainably.

In a speech in London, Ramsden said the “evolution of the market curve” since the BOE’s latest set of forecasts at the start of November “other things equal, would mean that financial conditions were less restrictive.”

The BOE held rates this month at 5.25% and stressed that monetary conditions will need to remain tight for some time. The current policy is “higher for longer” rather than raise rates further only to cut them shortly after. However, markets are now pricing in three quarter point rates cut in the second half of next year.

Ramsden used his speech to caution that the BOE still has more to do to declare victory over inflation, which has fallen to 4.6% from its peak of 11.1% last year. That’s still twice the 2% target, a goal the BOE doesn’t think will be achieved until 2025.

Ramsden noted that inflation is likely to fall below 4% by March, “in the absence of further shocks” but that there remain risks that the level of price increases will persist longer than the BOE wishes. 

His hint that markets are not priced correctly follows similar signals on Thursday from Catherine Mann and Megan Greene, two more of the nine BOE rate setters. They said that the UK has little scope to cut rates as inflation persistence remains threat.

Ramsden warned that “services inflation remains very high at 6.6%, which indicates more persistence in inflationary pressures” and that although the labor market is loosening, “unemployment has not risen by as much as might have been expected.”

“The encouraging progress on headline inflation masks diverging and significant trends in the components,” he added. He pointed to “evidence of greater persistence to inflation together with continued upside risks.”

The weakness of the economy also makes it more susceptible to inflation, he added. The BOE has downgraded the sustainable growth rate, at which prices are under control, to below 1%, which was “already a very low rate by historical standards,” he said. “Higher interest rates are weighing on demand.”

He stressed that “markets, as always, are entitled to make their assessment of the future” but warned that they currently “may be underpinned by a different view about prospects.”

Getting inflation back to target is the BOE’s resolute focus, he said. “Going back in history reminds us of just how difficult it can be to achieve low and stable inflation.”

--With assistance from Tom Rees and Lucy White.

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