UK disinflation progressing but faces final challenges, says Pill
Bank of England Chief Economist Huw Pill stated that the disinflation process in the UK is on course towards the 2 percent target. However, he cautioned that the process may not yet be complete, citing persistent services inflation and elevated pay expectations.
Inflation path towards target
The Bank of England's latest projections indicate that headline CPI inflation is on track to fall to the 2 percent target by the second quarter of 2026. This progress is also reflected in the moderation of wage growth, with both the Agents' Pay Survey and Private Sector Regular Average Weekly Earnings showing a downward trend.
These indicators suggest that the disinflationary forces are taking hold across the UK economy, moving it closer to the central bank's price stability mandate.
The February 2026 Monetary Policy Report (MPR) charts illustrate this trajectory, reinforcing the view that the policy measures implemented are having the intended effect on price dynamics.
Persistent pockets of pressure
Despite the overall progress, Huw Pill highlighted that the disinflation process may not yet be complete, pointing to several areas of persistent inflationary pressure.
Services CPI inflation, including and excluding indexed and volatile components, remains elevated.
Furthermore, various surveys, such as Citi/YouGov 1-year ahead inflation expectations and the Decision Maker Panel (DMP) price and wage growth expectations, suggest that inflationary pressures and pay settlements are still skewed above levels consistent with the 2 percent target.
These indicators suggest that domestic price pressures, particularly in the services sector and through wage dynamics, continue to pose a challenge to the Bank of England's inflation outlook, requiring ongoing vigilance.
A delicate balancing act
Pill's remarks underscore the Bank of England's cautious stance, acknowledging progress while highlighting stubborn domestic inflation.
This signals a prolonged period of data dependency, with any future policy adjustments contingent on clearer evidence of sustained disinflation.
For markets, this implies that expectations for rapid rate cuts might be premature.