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

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

In a major boost to families dealing with costly gas and electricity bills, regulator Ofgem said the price cap will be reduced by 12 per cent in April.

That will see typical households paying £1,690 a year compared with £1,928 at present – a saving of £238 or almost £20 a month.

Analysis by economists at banking group ING said this would bring inflation down to 1.9 per cent in April and 1.4 per cent in June – paving the way for the Bank of England to cut interest rates.

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

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

The Bank of England raised rates from a record low of 0.1 per cent in December 2021 to 5.25 per cent in August 2023 as it battled to bring runaway inflation back under control.

While inflation has fallen from a peak of 11.1 per cent to 4 per cent, it remains above the 2 per cent target, and speculation is mounting over when the Bank will start to cut rates.

The US Federal Reserve and European Central Bank are also expected to cut rates this year, having similarly hiked them to control inflation.