The MPC’s forecast predicts inflation below 2% in two to three years, signalling potential cuts.

EY ITEM Club predicts the first cut in June, citing crucial April data on pay and services inflation.

Peter Arnold, EY UK chief economist, said: “May’s MPC meeting saw the committee vote 7-2 to keep Bank Rate at 5.25%. However, there are indications that a rate cut is on the horizon.

“First, the MPC revised down its inflation projection across the whole forecast horizon. Based on market expectations, inflation is now forecast to be below the 2% target after both two and three years.

“This is usually an indication that the MPC thinks current market pricing is too high and that rates are likely to be cut more significantly.”

Mr Arnold continued: “Second, the Bank of England made a more explicit link to the information from ‘forthcoming data releases’ being a deciding factor over when rates will be cut. This suggests that the April data for pay growth and services inflation will be key.

“Both releases will be available to the MPC before the next meeting in June, so the EY ITEM Club is sticking with its call that the first rate cut will come at that meeting. That said, the decision is finely balanced and it wouldn’t be a major surprise to see the MPC prioritise caution and wait for August to start cutting rates.

“The EY ITEM Club then expects a further two 25bps rate cuts before the end of 2024, consistent with the MPC’s signalling that market pricing is too high.”

Sharing similar expectations of an approaching rate cut, Stephen McGee, CEO of Scottish Friendly, said: “Although the base rate remains unchanged anticipation is growing that a cut is just around the corner.

“Recent retail price data suggests that inflation may be getting closer to where it needs to be to give the Monetary Policy Committee the confidence to loosen its fiscal grip.

“As a result, investment markets in the UK hit record highs this week as optimism around imminent rate cuts took hold. While optimism and strong market performance is always welcome, it shouldn’t be forgotten that we have been turning the corner slowly on inflation since the start of the year. It wouldn’t be surprising if there is yet more road to run and it may still be a bumpier journey than many people think.”

Mr McGee further explained: “US monetary policymakers are expected to avoid a cut in its rates for now and predictions on the number of UK rate cuts that we will see in 2024 have been scaled back by most analysts of any note.

“Even so, it does seem that we may be emerging from the inflationary crisis and so the focus should shift to what can we learn and implement for the future.

“One thing to consider is whether the UK government’s 2% inflation target is a realistic one in this new economic context. Does increasing the target upwards towards 2.5% or even as much as 3% create a much more achievable and sustainable long term target and give the Monetary Policy Committee greater flexibility in how they respond to future economic challenges.”