Bank of England governor Andrew Bailey has hinted that it will ease off on interest rate rises and that they may now peak at 4.5%.

In an interview in Wales, he said the bank’s current thinking represented a rowing back from earlier expectations that rates would hit 6%.

He said UK inflation remains on track to fall rapidly this spring, but that the tight labour market still could cause problems.

Mr Bailey told the BusinessLive Wales news service that interest rate expectations have been cut back since the market turmoil in September and October caused by the mini-budget under former prime minister Liz Truss.

“If you go back to the height of that period, the peak of what the market thought we were going to get to was over 6%, but the time we did our forecast in November it was 5.2%, it is now down to 4.5%,” Mr Bailey said.

“Now I am not endorsing 4.5%, but what you may have noticed in December is that we did not include the comment that we made in November about the market being in our view rather out of line.”

On Wednesday, the Office for National Statistics said the UK consumer price index rose annually by 10.5% in December, slowing from a 10.7% rise in November, down from a four-decade high of 11.1% in October.

Mr Bailey and his eight monetary policy committee colleagues will announce their next interest rate decision on 2 February.

Analysts are divided over whether they will opt for another 50 basis point increase, taking rates to a post-financial crisis high of 4%, or a 25 basis point move.

The Bank has lifted borrowing costs nine times in a row, the most aggressive tightening cycles since it was made independent in the late 1990s.