An interest rate rise is “likely’ to occur this year, according to BoE governor Mark Carney, but any increases will be gradual.

However, EY Item Club has stated that a tight labour market and firming earnings growth were likely to encourage “hawkish instincts” at the bank.

The forecaster has predicted GDP growth of 1.6% this year and 1.7% next year, and said that the expected rate rises would allow the BoE to “gradually but steadily normalise monetary policy”.

However, EY Item Club chief economic adviser Howard Archer has warned that two rate hikes this year would exert “unnecessary pressure” on consumers.

“In additional, the burden of interest payments to the average household was at a record low the end of 2017, and so consumers are in a relatively healthy position to cope with dearer money,” Archer said.

He also stated that the UK economy was “chugging along at a fairly steady but uninspiring rate”, with inflation continuing to fall and a tight jobs market expected to “deliver some uptick in pay growth”.

Despite this, individual research conducted by Deloitte revealed an improvement in UK consumer confidence, but said this has “yet to translate into an overall increase in spending”.

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