The Bank of England’s Governor has said the UK is “much nearer” to the top of the cycle of interest rates but cautioned that inflation could rise again in August due to the impact of fuel prices.

Andrew Bailey told a group of MPs during a Treasury Committee session that there is no longer a clear upward path for interest rates, which currently stand at 5.25%.

Rates have been rising steadily for more than a year-and-a-half, putting pressure on borrowers but rewarding savers in a bid to bring UK inflation back down to its 2% target.

Some economists think rates will rise to 5.5% this month as pressure on the Bank to control inflation remains.

I think we are much nearer now to the top of the cycle ... based on the current evidence

Mr Bailey said: “There was a period where it seemed to me to be clear that rates needed to rise going forward and the question for us was how much and over what timeframe.

“We’re not, I think, in that place any more and that’s why we shifted our language to being much more evidence and data-driven.

“I think we are much nearer now to the top of the cycle. I am not, therefore, saying that we are at the top of the cycle because we still have a meeting to come. But I think we are much nearer to it, on interest rates, based on the current evidence.”

He stressed no decision has been made prior to policymakers meeting later this month.

The Bank chief stood by earlier forecasts that inflation will fall sharply towards the end of the year amid scrutiny over the economy.

Consumer Prices Index (CPI) inflation fell to 6.8% in July, down from 7.9% in June.

He told MPs that “it is possible that we will get a tick-up in the next release, as fuel prices went down in August last year but up this August”.

“I will add that the August monetary policy report does not have a recession in it, but it has a very weak growth path,” he said.

Furthermore, Mr Bailey admitted to being surprised by the continued pressure from wage bargaining by private-sector workers on UK inflation in recent months.

Mr Bailey has previously said that price and wage increases are “unsustainable” as he encouraged employers not to raise staff wages higher than the level of inflation.

Meanwhile, deputy governor Sir Jon Cunliffe said the UK is not expected to face a credit crunch but flagged that business investment and activity is slower.

I don’t think we’re seeing anything like a credit crunch at the moment

Sir Jon told MPs: “We’re seeing some tightening of credit conditions … but in a way, that is what you would expect when interest rates are up and growth is low, so banks and other lenders are taking risk-based decisions.

“I don’t think we’re seeing anything like a credit crunch at the moment.

“At the same time, we’re seeing businesses slowing investment decisions because interest rates are higher.”

He added that there has been a rise in more indebted companies but “nowhere near to the levels that we’ve seen in past peaks”.

Elsewhere in the far-reaching committee session, Mr Bailey acknowledged he was “conscious of the fact that the private rental market has a higher concentration in the lower-income groups in society” after being quizzed on the impact of higher rates on renters.

However, he insisted the consequences would be worse if inflation is not brought down.