Bank of England Governor Andrew Bailey said on Friday that he thought longer-term inflation pressures were easing but further interest rate cuts would not be rushed because it was still too soon to be sure inflation was beaten.
In a speech he will deliver on Friday at a central banking conference organised by the Federal Reserve in Jackson Hole, Bailey said the knock-on impacts of the leap in prices in 2022 appeared less damaging than the BoE had feared.
"The second-round inflation effects appear to be smaller than we expected. But it is too early to declare victory," he said in an advance version of the text provided by the BoE.
After a sharp fall in Britain's headline inflation rate, the BoE cut its main interest rate on Aug. 1 to 5% after keeping it at a 16-year high of 5.25% for nearly a year.
Bailey said then that the BoE would "be careful not to cut interest rates too quickly or by too much".
In the text of Friday's speech, Bailey said he was hopeful that the economic pain often associated with high interest rates to tackle high inflation might be avoided this time in Britain.
"Tentatively, it appears to me that the economic costs of bringing down persistent inflation - costs in terms of lower output and higher unemployment - could be less than in the past," he said.
"This is consistent with a process of disinflation which is steady and more in keeping with a soft landing than a recession-induced process," he continued.
But he reiterated the BoE's guidance that interest rates would have to "remain restrictive for sufficiently long" and "the course will therefore be a steady one".
Britain's economy has grown this year more strongly than the BoE and most other forecasters expected - a welcome inheritance for the new government of Prime Minister Keir Starmer - while an acceleration in wage growth has slowed.
Bailey said he was "cautiously optimistic" that inflation expectations were better anchored.
"We are now seeing a revision down in our assessment of that intrinsic persistence, but this is not something we can take for granted," he said.
It remained to be seen whether inflation pressures would ease off to a level consistent with the BoE's 2% inflation target on a sustained basis "and what it will take to make that happen," Bailey said.
While British inflation returned to its 2% target in May and June, it rose in July and the BoE forecasts it will reach 2.75% by the end of the year and remain above target all next year.
Investors were pricing a roughly one in three chance of the BoE cutting interest rates by a further quarter-point at its September meeting.
Earlier on Friday at the Jackson Hole event, Federal Reserve Chair Jerome Powell said the time had come for the U.S. central bank to cut borrowing costs.
