Hopes for interest rate cuts as energy bills fall by £238

Inflation will fall well below the 2 percent target this spring as household energy bills fall, according to a report.

In a big boost for families facing expensive gas and electricity bills, regulator Ofgem said the price cap will be cut by 12 per cent in April.

This will see the typical household pay £1,690 a year compared to £1,928 today, a saving of £238 or almost £20 a month.

An analysis by economists at banking group ING said this would reduce inflation to 1.9 percent in April and 1.4 percent in June, paving the way for the Bank of England to cut interest rates.

James Smith, developed markets economist at ING, said: “We think inflation will remain below the Bank of England’s target for much (if not all) of 2024. That should help unlock a rate cut in the summer.” . ING said it expects the first rate cut – from the current 16-year high of 5.25 percent to 5 percent – to come in August, although others believe it will come sooner.

Goldman Sachs this week anticipated a rate cut in June. The banking giant expects rates to fall to 4 percent by the end of this year and 3 percent by June next year.

The Bank of England raised rates from a record low of 0.1 percent in December 2021 to 5.25 percent in August 2023 as it struggled to get runaway inflation back under control.

While inflation has fallen from a high of 11.1 percent to 4 percent, it remains above the 2 percent target, and speculation is growing about when the Bank will begin cutting rates.

The U.S. Federal Reserve and the European Central Bank are also expected to cut rates this year, after similarly raising them to control inflation.