(Bloomberg) -- Bank of England Chief Economist Huw Pill said UK inflation will soon fall in line with the lower rates seen in the rest of the world, reflecting a drop in energy bills.

Pill said there will be a “sharp further fall” in the inflation rate to below 5% in October that will help partially bridge the gap between price increases in the UK and the US and the eurozone.

The BOE kept interest rates unchanged at 5.25% for a second straight meeting last week, but the UK still has the highest inflation among the Group of Seven economies. 

Pill expects the UK to appear like less of an international outlier when October’s inflation figures are revealed next week. He also hinted that rates could be cut by the middle of next year, as markets currently anticipate, but warned that global events will likely knock the BOE off course.

“We are a little bit slower,” Pill said at an online event Monday hosted by the BOE. “We have gone a little bit higher, or in some cases quite a lot higher than the US, but I don’t think that those forces are very persistent.”

“We’re going to see the UK get down to levels more comparable to what we’re seeing in the rest of the world.”

Money markets bolstered wagers on the scale of rate cuts, pricing almost three quarter-point cuts by the end of next year, starting with the first by August. That’s up from just one 25-basis-point decrease three weeks ago. UK two-year yields, which are among the most sensitive to changes in monetary policy, fell seven basis points to 4.65%, close to a five-month low.

The BOE’s new forecasts released last week predicted that inflation will plunge to 4.8% in October as household energy bills move down another step. It would mark a sharp deceleration from 6.7% in September but would still be higher than the latest 3.7% price increase seen in the US and 2.9% rise in the eurozone.

Pill became the latest BOE rate-setter to push back against speculation over imminent interest rate cuts, reiterating that it is premature. However, he hinted that cuts may be on the table by the middle of 2024, though he added that it is likely that global events will shift the timing. 

“Once we allow this to work through, maybe with interest rates staying at their close levels in the language the MPC used last week in its statement for an extended time, probably meaning into the middle of next year,” Pill said. 

“That’s what financial markets currently anticipate, and it doesn’t seem totally unreasonable, at least to me, then I would say it’s at that point that you might consider or reassess if nothing new has happened where we are going to have to be. But of course, it’s very unlikely, given the way the world is, that nothing will change over that nine-month period.”

Pill said the way consumer energy bills are set by government regulations are partly to blame for keeping Britain’s inflation level above its peers.

“What we haven’t seen yet is gas prices have fallen quite dramatically over the last year, but because of this cap that Ofgem only moves (every) three months, the ability of that energy price floor to feed through into UK inflation, it tends to take a bit longer than it does in other countries,” he said.

Pill also said that interest rates in the long run will settle somewhere in the middle between the current “restrictive” level and the “too low” levels seen before the pandemic. 

“Rates will hopefully come off their current levels as long as we return inflation to target, but equally we shouldn’t anticipate they’ll go back to zero on a very lasting way,” he said. “The situation that created rates at zero pre-Covid was an exceptional situation too, so they’re going to be somewhere in between.”

He also emphasized that events that are impossible to predict could blow the BOE’s forecasts off track and require it to take some sort of action on rates that nobody can anticipate.

--With assistance from Constantine Courcoulas.

(Updates with market reaction.)

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