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Central bankers were surprised by the rapid decrease in inflation, with UK services price growth needing further decline from current levels, according to Bank of England governor, Andrew Bailey.
In a statement following consumer price growth dropping below the 2 per cent target to 1.7 per cent in September, Bailey acknowledged the positive trend in slowing headline inflation.
However, he emphasized the importance of reducing services inflation to align with the BoE’s objectives.
Services inflation decreased from 5.6 per cent to 4.9 per cent in September, driven by lower airfares, as reported by the Office for National Statistics.
The central bank views services inflation as a key indicator of underlying price pressures, with the recent reading well below the bank’s forecast.
The drop in headline inflation triggered speculations of potential interest rate cuts in November and December, following the initial reduction in the summer.
Bailey hinted at the possibility of more aggressive rate cuts if inflation continued to decline.
He raised concerns about stubborn domestic price growth hindering progress towards sustained low inflation.
Bailey emphasized the need for services price growth to continue decreasing, highlighting the uncertainty surrounding potential structural changes impacting inflation.
He noted cautious consumer behavior despite rising real incomes, reflected in high savings rates.