Andrew Bailey, Governor of the Bank of England, said inflation has fallen “faster than we expected” but still warned that more progress would be needed on services inflation.
Speaking at a meeting of Institute of International Finance in Washington, Bailey said central banks around the world were seeing a “good story” on inflation.
“Disinflation — and the UK is part of this — has actually taken place faster than we expected it to,” he said.
The latest figures showed that inflation in the UK fell below two per cent for the first time since April 2021 in September, having peaked at over 11 per cent two years earlier.
However, Bailey struck a cautious note on services inflation, which rate-setters view as a good gauge of underlying price pressures in the economy.
“We’ve got a very unbalanced mix of inflation components and services inflation remains higher than is consistent with the target,” he said.
Price growth in the services sector eased significantly in September, dropping to 4.9 per cent from 5.6 per cent previously. But this was largely driven by volatile movements, such as a 35 per cent monthly fall in airfares.
Speaking earlier in the week, Megan Greene, another member of the Monetary Policy Committee (MPC), said she was not putting too much weight on the fall.
Bailey said there were still “genuine question marks” about whether the UK economy had undergone “structural changes” which would keep inflation higher for longer, pointing to a continued need for caution.
“We’ve got to see services prices inflation come further down,” he added.
Markets expect the Bank of England to cut interest rates again in November, having reduced rates for the first time since the pandemic in August.