Chief Inspector of Constabulary Sir Thomas Winsor said forces had mainly "done well" with 20% cuts in four years and more savings were likely.
Sir Thomas said a "smaller service" would have to "work smarter".
In December, the chief of the Met Police warned public safety would be at risk unless radical measures were taken to deal with funding cuts.
But speaking on BBC Radio 4's The World This Weekend, newly knighted Sir Thomas said: "Austerity is here to stay.
"The police have already made, and done it well in the main, cuts of 20% in the last four years and they are facing cuts of a further 5% next year.
"There will inevitably be a time where they can't take any more but let us remember that measured crime has fallen dramatically - but so have the demands made on the police."
Asked if there was room for further cuts, Sir Thomas said: "In some respects there are further efficiencies to be obtained, that is undoubtedly the case.
"They [police forces] need to work smarter because they will be working smaller."
Sir Thomas said forces had not done enough work to analyse new demands being made on them, particularly with regards to cyber crime.
He also said that while any crime reported to the police had to be taken seriously, there were some crimes that were "more serious than others".
"Nobody would argue that shoplifting is as serious as a violent assault and therefore the police need to look for the crimes that matter most to people, that do greatest harms to communities - serious and organised crime, drugs, violent offences, the grooming and sexual exploitation of children," he said.
Last month, Metropolitan Police commissioner Sir Bernard Hogan-Howe said that unless police "act fast" and with "courage" to implement far-reaching reforms, the cuts would endanger public safety.
He suggested police forces in England and Wales should merge and share resources with other emergency services.
Sir Hugh Orde, the Association of Chief Police Officers' president, has also recently warned that police forces were struggling to deal with reductions in funding.

Garita, 20, plays for Chateauroux in France's third tier and was at Ashton Gate on trial in November.
"Arnie is a £50,000 punt that will play in our under-21s," Cotterill told BBC Radio Bristol.
"We don't have anyone who is as physically strong as he is. He's raw, big, strong, tough and hungry."
The Robins are currently short of options up front, with Jonathan Kodjia, signed from French side Angers last summer, starting all but one of their matches in the Championship this season.
Cotterill says that Garita will train with City's first team, and could force his way into the senior XI as his search for new players continues.
"In the first training session he clattered Nathan Baker, and then Nathan clattered him back, and he had a big smile on his face," said Cotterill, who had been hoping to extend Elliott Bennett's stay with the club before he joined Blackburn from Norwich on Tuesday.
"He endeared himself to all the lads by working hard and we have to see where that one goes. If he ends up in the first team it'll be one hell of a story."
On the type of player he is hoping to sign in January, Cotterill added: "Good ones if we can - the trouble is there is a lack of good ones available.
"We need some players that can go in and help the younger ones.
"We are doing our best. My phone is having to be charged two or three times a day - we just want a few good ones. We don't want the wrong ones, we've got a lot going for us."

British Transport Police said the incident happened at Glasgow Central station on Friday 20 October at 16:25.
The two dogs were described as a tan coloured Staffordshire or pitbull terrier and a German shepherd.
The woman had long brown hair, glasses, and was wearing a grey hooded top with the number 88 on the front.
Police said she may have boarded the 17:30 train to London Euston.
Police cuts in England and Wales are "here to stay", the head of the police watchdog has said.
[NEXT_CONCEPT]
Bristol City are closing in on the signing of striker Arnold Garita, a player that manager Steve Cotterill has described as a "£50,000 punt".
[NEXT_CONCEPT]
Police have released a CCTV image of a woman who they want to speak to in connection with a guide dog that was attacked by two other dogs.