The Bank of England risks inflicting unnecessary damage to the economy by keeping interest rates too high for too long, a leading City economist has warned.

Benjamin Nabarro, chief economist at Citi, said a large share of the impact of the post-lockdown jump in rates from 0.1pc to 5pc today was yet to be felt.

“The MPC are unfortunately still operating with an inflation-averse state of mind. Given the outlook, we see that as increasingly inappropriate,” he said.

He predicted the Bank, led by Andrew Bailey, will cut rates next month and again in February, before accelerating the pace to cut by 0.25 percentage points in every meeting from May.

“We think, however, that that risks still waiting too long and therefore scarring investment further than is necessary. While the MPC should of course remain primarily focused on their inflation mandate, growth concerns including more structural issues should not be irrelevant in monetary policy deliberations.”

Citi expects the UK economy to grow by 1pc this year but slow to 0.7pc in 2025 as unemployment continues to rise.

Mr Nabarro warned that “rather soggy” growth means Rachel Reeves should not expect a rebound in the economy to come to the rescue with stronger tax receipts or lower demand for benefits.

“Growth has picked up since the start of this year [but] none of the core demand engines of the UK economy, in the form of private consumption, business investment or external demand, seem to be yet motoring. For now we think the underlying growth rate is 0.2-0.3pc quarter-on-quarter, so relatively subdued,” he said.

The warning came as part of the IFS’s pre- Budget briefing, which was partly informed by economic forecasting prepared by Citi.

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