The Bank of England’s deputy governor of monetary policy has hinted that interest rates may not rise as sharply as the markets are expecting.

Amid signs global prices are stabilising, Ben Broadbent said it is not yet clear what the next steps might be.

But he warned that raising interest rates to 5.25% next year would knock nearly 5% off the economy.

Addressing students at Imperial College London, Mr Broadbent stated: “Whether official interest rates have to rise by quite as much as currently priced in financial markets remains to be seen.”

There have been expectations that at its next meeting on 3 November the Bank’s monetary policy committee would hike the current base rate from 2.25% to 3% and possibly to 3.25%.

Mr Broadbent’s message was in stark contrast to the hawkish tone struck by the governor Andrew Bailey who at the weekend warned of higher than expected rises in interest rates to tackle persistent inflationary pressures.

Mr Bailey, speaking in Washington, said the Bank “will not hesitate to raise interest rates to meet the inflation target.

“And, as things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August.”

The Bank of England’s chief economist Huw Pill last week told a Glasgow audience hat he remains committed to a “significant” move in interest rates at the November meeting.

Mr Broadbent, who sits on the nine-member MPC, pointed out that soaring inflation has largely been driven higher by rising import prices, particularly on gas and food, as a result of the pandemic and the Ukraine war. These will fall over time, he said.

“The justification for tighter policy is clear,” he said. “It remains the case that most of the overshoot in headline Consumer Prices Index inflation, relative to target, reflects the direct impact of higher import prices.

“It also remains likely that much of this is likely to fade as those prices stabilise. This appears already to be happening in areas most affected by the pandemic.”