Mr Bailey was speaking in Wales the day after the Consumer Prices Index fell to 10.5% for December, down from 10.7% in November and a 41 year high of 11.1% in October.
In an interview with the Western Mail published on the BusinessLive website Mr Bailey said the dip in the CPI was “the beginning of a sign that a corner has been turned,
“What we think is the most likely outcome is that it (inflation) will fall quite rapidly this year, probably starting in the late spring, and that has a lot to do with energy pricing.”
However, he also sounded a note of caution on pay, which is rising at close to record levels.
He said: “At the moment I think the news on pay — yes there are some signs that if anything it is still rising a bit — but some of the forward looking surveys of earnings and pay are not as strong as that actually
“We are extracting every piece of information that we can possibly find.”
The governor warned of a likely “long but shallow recession” through 2023, He said: “I have been in South Wales talking to firms and get a lot of stories, as I do when we go to other parts of the country, that even though activity in the economy has been quite weak in recent times, the labour market remains very competitive and that is influencing pay negotiations.
He noted that the UK is suffering “a quite unprecedented and quite unique fall in the labour force” because of at least 500,000 people dropping out of the workforce since the pandemic.
Mr Bailey also suggested that the financial markets’ expectations that interest rates would peak at 4.5% was more closely aligned with the Bank’s own thinking.
He said: “I am not endorsing 4.5%, but what you may have noticed in December is that we did not include the comment that we made in November about the market being in our view rather out of line,”
The Bank’s Monetary Policy Committee is expected to order a 0.5% rise to 4% in early February.