Homeowners could be forced to wait until the autumn for lower mortgages as the Bank of England delays cuts to interest rates, experts have warned.
The Bank has held rates at 5.25 per cent since August because of persistent inflation, amid pressure from some Conservative MPs who believe cutting rates could boost the economy.
Despite previous forecasts that rates could come down in the spring, economists now believe the Bank’s Money Police Committee (MPC) will vote for no change when it meets on Thursday.
While most experts still predict that at least one cut will come this year, they have warned that this may not happen before August – and possibly not until September.
When the MPC met in March, just one member, Swati Dhingra, voted for rates to be cut. The remaining eight members voted for no change.
The predictions will come as a blow to Rishi Sunak, who is relying on an improved economy to boost his electoral hopes.
With millions of households being stung with increased mortgage payments because of high interest rates, an August rate cut would not give much time for people to feel the impact before an expected autumn election.
Inflation fell to 3.2 per cent in March, according to the latest figures, after reaching double digits last year. The Bank’s target is 2 per cent.
But both services inflation and pay growth have slowed less than expected, prompting concerns among Bank officials that inflation could start rising again if they cut interest rates too early.
Julian Jessop, economics fellow at the Insititute for Economic Affairs, said that despite signs that inflation could fall to 2 per cent soon, “the majority of MPC members are likely to want to wait for more evidence that underlying price pressures are cooling too, notably pay rises and services inflation.”
Andrew Goodwin, chief UK economist for Oxford Economics, said: “The data published in mid-April for services inflation and private sector regular pay growth has likely extinguished any remaining hopes of a move in May.
“Though both measures have continued to fall, progress has been slightly slower than the MPC anticipated, and they are currently running marginally higher than the forecasts published in February’s Monetary Policy Report.”
He said it is likely to be a “close call” on whether the MPC decides to cut rates in June or August.
Paul Dales at Capital Economics said: “We’ve been forecasting since the start of the year that interest rates would first be cut in June. Our reasoning is that we think inflation and wage growth will fall further and faster than the Bank currently expects.
“If not, then perhaps the Bank would first cut interest rates at the following meeting in August. Either way, our inflation forecast implies that rates may need to fall to 3 per cent next year.”
Edward Jones, a professor of economics at Bangor University, said: “I’d be very surprised if they do announce a cut this Thursday. I think the Bank will keep them high.
“What will be interesting is how the MPC vote. There will be more of a shift of people voting to cut rates. This will be a telling message of when we can expect a rate cut. Bar any surprises, I still think we will have an August cut.”
Philip Shaw, chief economist at Investec, said: “This broad direction illustrates that collectively the committee is moving gradually towards a rate cut.
“It seems unlikely though to be ready to bite the bullet just yet and the Bank rate looks set to remain on hold at 5.25 per cent for the sixth consecutive meeting.”
He added that it is possible that a second member of the MPC will switch to the “easing camp” and vote for a cut on Thursday.
Meanwhile, the Federal Reserve, the US central bank, said on Wednesday it was keeping its key interest rate at the same level and noted a “lack of further progress” towards lowering inflation.
It means rates could stay higher for longer until there is firmer evidence of price rises easing, its chairman, Jerome Powell, suggested.
