UK interest rates ‘to be cut in May next year’

UK interest rates will be cut as soon as May and fall to 4.25pc by the end of next year, analysts at Morgan Stanley have forecast.

The Wall Street bank’s prediction points to a faster series of cuts than predicted by the wider market – and could spell relief for millions of hardpressed borrowers.

Divisions have opened up at the Bank of England over when the first cut should come.

The Bank’s chief economist Huw Pill said last week that it ‘doesn’t seem totally unreasonable’ to expect it to happen next August.

But his boss, governor Andrew Bailey, contradicted him, insisting it was ‘really too early to be talking about cutting rates’.

Traders are betting on a quarter percentage point rate cut to come next August, with another pencilled in by the end of the year. That

‘We think 4.25pc at the end of 2024’

would take the Bank rate down to 4.75pc from its current level of 5.25pc.

But in a note to clients, researchers at Morgan Stanley said: ‘The Bank of England cuts from May, we think, with rates at 4.25pc at the end of 2024.’

The banking giant also sees the UK entering a recession at the turn of next year – meaning two quarters of negative growth.

That is slightly worse than forecast by the Bank of England, which thinks growth will be flat from now until the end of 2024.

But the economic weakness is a sign that the painful interest rate medicine is working.

The Bank also predicts that figures tomorrow will show inflation falling below 5pc – which is also likely to add to calls for a rate cut.