Bank of England under pressure to follow suit of the European Central Bank and cut interest rates

Interest rates in Europe are set to be cut next week, stepping up pressure on the Bank of England to follow suit.

Policymakers at the European Central Bank (ECB) are preparing to lower borrowing costs from a historic high when they meet on Thursday.

It comes ahead of a crunch Bank of England meeting in June to decide if rates should be cut from a 16-year peak of 5.25 per cent in a boost for households.

Last week official figures showed that UK inflation dropped sharply in April to 2.3 per cent.

In response, Prime Minister Rishi Sunak heralded 'brighter days ahead', saying inflation was 'back to normal'. 

The economy also bounced back from recession at the start of 2024. Last month, the Bank of England's monetary policy committee held rates, prolonging the misery for mortgage-payers.

Although the inflation rate has fallen close to the Bank's 2 per cent target, borrowing rates are expected to stay high until autumn despite the ECB move.

Lindsay James, of Quilter Investors, said the ECB was 'in a stronger position to look at rate cuts' as core annual inflation has fallen more than in the UK.

Investors are betting that the ECB will lower rates by 0.25 percentage points from a record high of 4 per cent at their meeting.

Yesterday ECB policymaker Olli Rehn said the 'time is ripe' to start cutting rates next month as long as there were no more energy price rises.