The Bank of England has been urged to cut interest rates “aggressively” to avoid leaving “growth on the floor”.

Economists at the Institute for Public Policy Research (IPPR), a think tank with ties to Labour, have called on Threadneedle Street’s policymakers to move quickly to lower borrowing costs.

They said in a new report: “The Bank of England should loosen monetary policy aggressively to boost growth and wages.”

The plea comes as Britain’s economy is struggling to grow and the cracks in the job market are widening.

The UK’s unemployment rate is at a five-year high of 5.2pc. Among young people, joblessness rates have overtaken Greece’s for the first time.

At the same time, inflation is expected to fall to the Bank’s 2pc target within months.

Joseph Evans, a research fellow at the IPPR, said: “Once inflation has fallen to 2pc, the Bank should move to cut rates more quickly.

“Its current stance, which is expected to entail one or two 0.25 percentage point cuts this year, risks running the economy too cold for too long and might leave growth on the floor.

“The Bank should clearly signal that it is prepared to go further.”

The Bank of England faced widespread criticism in the wake of the pandemic for failing to raise interest rates fast enough as inflation surged to a 42-year high of 11.1pc in October 2022.

However, many experts now fear that such accusations will make Andrew Bailey, the Bank’s Governor, and his panel of rate-setters reluctant to lower rates quickly even as the economy is weakening.

The IPPR argues that rate-setters risk doing unnecessary damage by leaving interest rates high for too long.

Lowering interest rates would trigger higher pay rises for lower-paid workers, fuel growth and move more people off benefits and into work, the think tank said.

Carsten Jung, the associate director for economic policy at the IPPR, said: “The Bank of England should aim to run the economy slightly hot. The post-pandemic experience in the US shows that this could have big benefits for future growth and for workers in the UK too.

“The Bank of England and Treasury are currently still deliberately running the UK economy cold. This year, output is 1pc below what it could be. The aim is to help bring inflation down to target but they risk overdoing it.”

The Bank of England’s panel of rate-setters is widely expected to cut the base rate by 0.25 percentage points to 3.5pc at its next meeting in March.

Traders are pricing in two cuts this year, suggesting rates will end the year at 3pc.

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