Bank of England governor Andrew Bailey said inflation has fallen “faster than expected” but questioned whether the scourge of rising prices had been wrung out of the economy.
The head of the central bank said: “Disinflation is happening, I think faster than we expected it to, but we still have genuine question marks about whether there have been some structural changes in the economy.”
“If you’d ask me what inflation was going to be now, it would have been a bit higher than it is today.”
He added that central banks around the world were seeing a “good story” on inflation and that “the UK is part of this”.
Bailey was speaking in Washington DC last as he attends annual meetings of the International Monetary Fund and the World Bank.
His comments will further fuel market expectations that the Bank’s rate-setting Monetary Policy Committee will cut interest rates at its 7 November meeting by 0.25% to 4.75% from 5%.
This morning, the money markets are betting that a November rate cut has an 89% chance.
UK inflation last week fell unexpectedly to 1.7% in the year to September, the lowest rate in three-and-a-half years, taking it comfortably below the Bank’s 2% target.
Price growth in the services sector, a key measure the Bank looks at closely, eased significantly, falling to 4.9% from 5.6% previously. But this was largely driven by volatile movements, such as a 35% monthly fall in airfares.
Earlier this month, Bailey said that its rate-setting committee should consider a “more aggressive” position on base rate cuts earlier this month.
However, a day later the Bank’s chief economist Huw Pill seemed to contradict this, saying that rates should not be cut “too far or too fast.”
The Bank last cut the base rate by 0.25% to 5% in August, its first cut in four years.
