Rishi Sunak hails ‘new economic moment’ as inflation falls to a two-year low and experts predict interest rates could be cut FIVE times this year

•  Inflation dropped to 3.4 per cent last month from 4 per cent in January this year
•  Jeremy Hunt confirmed the Tories will further cut NI, despite Labour opposition

Rishi Sunak last night hailed a ‘new economic moment’ as inflation fell and economists predicted interest rates will start falling within months.

In an upbeat assessment, the Prime Minister said 2024 would ‘prove to be the year that the economy bounces back’ following a ‘tough’ period.

A sharper-than-expected fall in inflation has raised hopes that Britain is in the ‘last mile’ of its battle to end the cost-of-living squeeze. Inflation dropped to 3.4 per cent last month from 4 per cent in January amid predictions that it could hit the Bank of England‘s 2 per cent target next month.

The Bank is expected to hold interest rates at 5.25 per cent today. But the markets believe the rate will start to fall this summer, with some economists predicting as many as five cuts this year, easing mortgage costs for millions of households.

Kallum Pickering, a senior economist at Berenberg Bank, said: ‘We look for the Bank to cut five times in 2024 to 4 per cent by year-end. We then look for a further cut to 3.5 per cent in early 2025.’

Mr Sunak told the BBC he was ‘optimistic about the future’.

He acknowledged that ‘things still feel tough for lots of people’, but added: ‘Wages have been rising ahead of prices for eight months in a row, mortgage rates and energy bills are all now falling. And because of that, we’ve been able to start delivering meaningful tax cuts for people… So yes, I am optimistic about the future.

READ MORE:  JEREMY HUNT: The figures show our plan is working… but we need to stick to it and see it right the way through

‘I do believe that our plan is working. And if we stick to it, we will give everyone the peace of mind that there’s a brighter future ahead.’

Chancellor Jeremy Hunt said the fall in inflation ‘sets the scene for better economic conditions which could allow further progress on our ambition to boost growth‘.

He added: ‘As inflation gets closer to its target, that opens the door for the Bank of England to consider bringing down interest rates, that brings down mortgage rates – that makes a very big difference.’

A fall in the cost of borrowing could also create scope for billions of pounds of tax cuts at a second pre-election Budget already being pencilled in for September.

Writing in the Mail today, Mr Hunt says that the fall in inflation – which now stands at its lowest level since September 2021 – represents ‘a sigh of relief after a tough few years for the British economy‘.

The Chancellor has slashed 4p off the main rate of National Insurance in the past six months, delivering a tax cut worth £900 to an average worker.

And he confirms the Conservatives will go further in cutting NI, despite Labour opposition, describing the levy as a ‘double tax on work’.

Markets are betting that with inflation in retreat, the Bank will be ready to start cutting interest rates from this summer.

February’s figure is down from 10.4 per cent a year earlier – the biggest one-year decline since 1978, according to the Resolution Foundation think-tank.

The scale of the fall more than delivers on the Prime Minister’s flagship pledge to halve inflation last year. Although the fall is driven in part by global factors, Mr Sunak insisted that tough government decisions on spending and borrowing restraint had had ‘a role to play’.

Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said the ‘notable decline’ in inflation provided ‘further evidence that the UK is fast approaching the finish line in its battle against surging inflation’.

‘The last mile of this inflation marathon should be the easiest with lower energy bills, following the cut in Ofgem’s energy price cap, likely to drag the headline rate back to the Bank of England’s 2 per cent target in April.’

Markets are predicting the Bank will cut interest rates at least three times this year, beginning this summer, knocking hundreds of pounds a year off the cost of an average mortgage and neutering one of Labour’s major political attack lines.

Joe Nellis, professor of global economy at Cranfield School of Management, said the first cut could come as soon as May.

‘The patient is off the sick bed. And a May interest rate cut is a distinct possibility,’ he said. ‘Today’s significant fall in inflation is a hugely positive sign for the UK economy and a welcome relief for an embattled government.

Latest figures showed food inflation at 5 per cent, down from 6.9 per cent in January. It had peaked at an eye-watering 19.1 per cent in March last year.

 

Jeremy Hunt told Sir James Dyson to run for Parliament ‘if you think you could do a better job’ in a ‘fiery’ exchange last week, it has been claimed.

After the tech entrepreneur – a critic of the Government – raised a ‘long list’ of concerns during a meeting, the Chancellor ‘snapped back’ and told him he should stand as an MP, the Financial Times reported.