Inflation in the U.K. has been falling faster than anticipated, but there is still progress to be made before it reaches a stable level, according to Bank of England (BOE) Governor Andrew Bailey.
Speaking at the Financial Times Global Boardroom event, Bailey emphasized that while the disinflation process is firmly underway, the path to fully taming inflation remains uncertain.
The Bank of England recently reduced its key interest rate for the second time since August, signaling a gradual approach to monetary easing. Bailey suggested that market expectations of four additional quarter-point cuts in 2025 align with the central bank’s outlook, though he stressed that policy decisions would remain responsive to unpredictable economic shifts.
Key concerns include the impact of a newly announced employment tax hike set for April, as well as potential repercussions from shifts in U.S. tariff policies and retaliatory measures by affected nations. These developments could influence inflation through trade disruptions and exchange rate fluctuations, which Bailey acknowledged are difficult to forecast.
Although inflation briefly fell to the BOE’s target over the summer, Bailey warned it could rise slightly above target again. The BOE remains cautious, balancing gradual rate cuts with the evolving economic landscape.