Barclays believes rates will fall to 3.25pc by early 2025.
The growth figures reveal the impact of high interest rates on UK households and will serve as a blow to Prime Minister Rishi Sunak, who at the start of the year made expanding the economy one of his five key pledges.
They also mean the UK’s post-pandemic recovery is now worse than any other G7 economy except Germany.
Jeremy Hunt, the Chancellor, insisted “the medium-term outlook for the UK economy is far more optimistic than these numbers suggest.”
In more encouraging signs, shop sales rose by more than expected in November as Black Friday discounts boosted spending on toys and make-up ahead of Christmas.
Retail sales volumes rose by 1.3pc in November, according to the ONS, which far exceeded analysts’ expectations of 0.4pc.
Sales growth in October was also revised up to 0pc after the ONS previously said sales fell by 0.3pc.
Darren Morgan, director of economic statistics at the ONS, said: “Retail sales grew strongly in November as heavy Black Friday discounting encouraged shoppers to spend.”
But Mr Morgan warned: “It’s still a challenging time for retailers.”
On a quarterly basis, retail sales fell by 0.8pc in the three months to November. Sales were also still below pre-pandemic levels.
Non-food sales volumes were down by 2.7pc compared to pre-lockdown.
Lisa Hooker of PwC said: “In spite of the headline improvement in sales last month, Christmas is still likely to come down to the wire for retailers.”
PwC has warned that consumers are planning to spend less than normal in the run-up to Christmas because of the rising cost of living. This increases the likelihood that shops will need to use Boxing Day sales to clear out seasonal stock, Ms Hooker said.
“The golden quarter will have been a disappointment to many retailers,” she added, referring to the traditional festive selling season.
