Traders bet on interest rate being cut to 4% by end of this year

Money markets are betting interest rates will start to fall this year as inflation fears are overtaken by the need to shore up Britain's ailing economy.

Traders are now pricing in the Bank of England's benchmark rate hitting a peak of 4.5 per cent over the summer before drifting towards 4per cent by the end of 2023.

It comes after the latest signs that inflation is being brought under control as official figures showed factories reduced their prices in December by the sharpest pace since April 2020.

At the same time, a leaked private memo from the Office for Budget Responsibility showed the fiscal watchdog was set to cut its growth forecasts.

It comes a day after a monthly business survey showed the UK suffered a worse-than-expected start to the year as strikes and cost of living pressures added to fears of a looming recession.

Stuart Cole, macro economist at Equiti Capital, said: 'The data was not good. The bigger picture is today's producer price inflation numbers, which have shown inflationary pressures to be receding and which have cast doubts on how far the Bank will ultimately raise interest rates too.'