Interest rates could be cut by the Bank of England as early as next May, experts say – a big boost for mortgage holders.
The move would also ease the burden on government coffers by reducing the cost of debt.
Analysts at Wall Street financial services giant Morgan Stanley said falling energy costs would lower inflation – paving the way for a decline from the current high of 5.25 percent.
The US bank predicts that interest rates could fall by a full percentage point to 4.25 percent by the end of the yearYear.
However, they warned that Britain could be in recession with the economy contracting by 0.1 percent.
The Bank of England, which also said last week that the U.K. would cut interest rates next year, has voted twice to keep rates stable while focusing on fighting inflation.
High interest rates are intended to dampen demand and spending – leading to a slowdown in inflation rates.
But they also mean that the debts paid by households, borrowers and the state become more expensive.
Bank governor Andrew Bailey has repeatedly tried to warn against expectations of an imminent interest rate cut.
Last week Mr Bailey said it was “too early to talk about rate cuts”.
However, Huw Pill, the bank’s chief economist, said this was “sensible”.predict a fall in interest rates .
The markets have already priced in interest rate cuts starting in the summer, rather than that .
Economists have warned of the danger of keeping interest rates high at a time of no economic growth as it could plunge the UK into recession and trigger a rise in unemployment.
They expect figures for this week to show the rate of consumer price increases has fallen to five per cent – meaning Prime Minister Rishi Sunak has met his target of halving inflation by the end of the year.