INTEREST rates could be cut by the Bank of England as soon as next May, say experts — in a big boost for mortgage holders.
The move would also help government coffers by reducing debt costs.
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Analysts at Wall Street financial services giant Morgan Stanley said falling energy costs will bring down inflation — paving the way for reducing the current high of 5.25 per cent.
The US bank predict rates could be a full point down to 4.25 per cent by the end of next year.
But they warned the UK could be in recession as the economy shrinks by 0.1 per cent.
The Bank of England, which last week also said the UK would flatline next year, has twice voted to hold rates steady while it concentrates on tackling inflation.
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High rates are meant to dampen demand and spending — resulting in inflation rates slowing.
But they also mean the cost of debt paid by households, borrowers and the government is more expensive.
Bank governor Andrew Bailey has repeatedly tried to caution against expectations that rates will drop soon.
Last week Mr Bailey said that it was “too early to start talking about rate cuts”.
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However Huw Pill, chief economist at the Bank, said that it was “reasonable” for markets to predict a rate fall in the summer.
Money markets have already priced in rate cuts beginning in the summer, rather than the spring.
Economists have warned against the danger of keeping interest rates high at a time of zero economic growth as it could tip the UK into recession and spark a rise in unemployment.
They expect figures this week to show that the rate of consumer price rises has dipped to five per cent — which will mean Prime Minister Rishi Sunak has hit his goal of halving inflation by the year’s end.
