The Bank of England is coming under pressure to cut interest rates after spikes in mortgage costs over the last month.

A group of independent economists who shadow the Bank of England has called for interest rates to be cut substantially and immediately.

However, economists are widely expecting the committee to keep rates at the current level of 5.25%, which it has been held at since August last year.

The high interest rates have meant homeowners have been saddled with soaring mortgage repayment costs.

According to Rightmove, the average five-year fixed mortgage rate is now above 5% for the first time since January, while average two-year fixed mortgage rate currently stands at 5.41%, up from 4.84% a year ago.

The Shadow Monetary Policy Committee, hosted by the free market think tank the Institute of Economic Affairs, argues that the UK faces a period of weak growth or even recession if the Bank fails to cut rates aggressively.

The SMPC believes that having successfully curbed inflation, the Bank risks doing serious economic damage by keeping rates too high for too long following a slowdown in the money supply. If the Bank does not speed up the money supply, it increases the likelihood of an unnecessary slowdown and potentially deflation.

The committee expressed concern that the Bank of England has not adequately responded to inflation rates, which are considerably below the Bank’s expectations and set to fall below the Bank’s 2 per cent target imminently. This comes after a review led by former U.S. Federal Reserve Chairman Ben Bernanke criticised the quality of the Bank of England’s forecasting and communication.

The slowdown risk is driven by the lack of growth in the broad money supply (M4), which turned negative last year, indicating a contraction in credit availability. Because price inflation is on track to fall below target much sooner than expected, the Committee concluded that holding rates at 5.25% could severely hurt the UK’s growth prospects.

To boost money supply growth to a stable 4-5% level, members also urged an immediate end to Quantitative Tightening – the process of selling bonds to shrink the money supply and push up long-term interest rates. The consensus view is that the Bank of England needs to shift its monetary policy stance without delay to support the economy and prevent a damaging undershoot of the inflation target.

Dr Andrew Lilico, chair of the Shadow Monetary Policy Committee and executive director of Europe Economics, said: “The Bank of England was too slow raising rates when inflation was rising because it missed the clear message from rapid growth in the money supply data. It has made a similar mistake in recent months but in the opposite direction: money supply has contracted or grown only far too slowly for many months, yet the Bank has failed to cut rates.

“The consequence so far has been that inflation is well below what the Bank predicted. The consequence in the future will be inflation significantly under-shooting the target and economic growth being damaged. Rates should be cut immediately.”