LONDON - Interest rates will head downwards gradually towards a "a neutral rate", Bank of England Governor Andrew Bailey said in an interview published on Tuesday.

He said he was "very encouraged" by the downwards path of inflation.

"Therefore I do think the path for interest rates will be downwards, gradually," he said in an interview published online by the Kent Messenger newspaper.

Asked where interest rates would settle, Bailey said he did not expect them to return to the historic lows close to zero last seen four years ago, and his "best guess" was that it would settle "at a neutral rate".

Last week the BoE kept its main interest rate unchanged at 5% after cutting it from a 16-year high of 5.25% in August.

Economists polled by Reuters expect the BoE to cut rates to 4.75% at its next meeting in November.

Bailey said last week that he was optimistic rates would fall further, but also said cuts would need to be gradual and the BoE needed "to be careful not to cut too fast or by too much".

(Reporting by Sachin Ravikumar, writing by Sarah Young, Editing by Kylie MacLellan)