BoE’s Bailey: Disinflation surprising, but structural Economic changes pose uncertainty

At an event hosted by the Institute of International Finance, BoE Andrew Bailey acknowledged that disinflation in the UK is progressing “faster than we expected”. However, he expressed concerns about potential “structural changes” in the economy that could sustain price pressures.

Specifically, Bailey highlighted uncertainty around the labor market and whether shifts in employment dynamics might keep inflation elevated.

He pointed to services inflation, which remains high at just under 5%, and emphasized that it “has to come further down” to meet the 2% target. Despite some signs of labor market loosening, Bailey noted it remains tight, contributing to ongoing inflationary pressures.

“We’ve got a very unbalanced mix of inflation components and services inflation remains higher than is consistent with the target,” Bailey said.