A hike in income tax at this month’s Budget could dampen inflation and speed up the course of interest rate cuts from the Bank of England (BoE), economists predict.

Rachel Reeves is reportedly mulling over an increase in taxes paid on income, despite such a move being ruled out in Labour’s general election manifesto.

A hike would mean millions of workers paying hundreds of pounds extra to the exchequer.

However, economists argue that one side effect would be a reduction in demand for goods and services, which would likely lead to lower inflation .

This lower inflation would likely prompt the BoE to cut interest rates from their current level of 4 per cent at a faster rate.

In turn, mortgage experts say rates on home loans could then fall.

The BoE is set to keep interest rates at

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