Brits’ hopes of double interest rate cut before Christmas are hammered by Budget… as jittery markets force up government’s borrowing costs

Hopes of a double interest rate cut before Christmas look to be dwindling in the wake of the Budget.

Goldman Sachs is now expecting rates to be kept on hold in December, instead of seeing a 0.25 percentage point reduction.

And there are more worrying signs of jitters on the markets, as traders push up the cost of servicing government debt. Yields on so-called gilts have been nudging up again after the Chancellor rewrote fiscal rules yesterday so she can borrow tens of billions more for investment.  

An interest rate cut from 5 per cent is still seen by analysts as likely to happen when the Bank of England‘s Monetary Policy Committee meets next week.

But the Chancellor’s huge spending bonanza unveiled yesterday has raised doubts about how fast the level will fall.

There are more worrying signs of jitters on the markets after the Budget, as traders push up the cost of servicing government debt

The OBR watchdog believes prices will rise faster than expected over the next couple of years as a result.

It has forecast that that Threadneedle Street will respond by keeping interest rates higher for longer.

Meanwhile, GDP growth will accelerate next year due to the Government’s splurge but fall to less than 2 per cent by the end of Labour’s term in office.

The projections are grim for millions of Brits who have been hoping for relief from mortgage strain. 

Optimism had been growing of a Christmas boost with two quick interest rate cuts after inflation tumbled below the Bank’s 2 per cent target for the first time in three years. 

Bank governor Andrew Bailey had suggested that it could be more ‘aggressive’ if CPI continued to subside. 

Goldman is now anticipating a quarter-point cut next week, before a pause, with rate dipping to 3 per cent by November next year. Previously it had forecast 2.75 per cent by that time. 

Meanwhile, gilts hit levels not seen for around a year today, although the rates have been fluctuating. 

The OBR said it had made its pre-measures assessment on interest rates last month.

‘The substantial fiscal easing in this Budget, boosting demand and borrowing, was not likely to have been fully anticipated by market participants at this time,’ the report said. 

‘We have therefore increased our Bank Rate and gilt rate forecasts by a quarter percentage point over the five-year period in our post-measures forecast.’ 

The OBR expects the Bank of England will respond by keeping interest rates higher for longer, pumping up costs of servicing loans

Inflation over the next couple of years will be higher, ‘reflecting the impact of this Budget’, the watchdog added

The OBR has warned that mortgage rates are set to stay higher for longer