Interest rate cuts are still “some way off”, the Bank of England’s chief economist has warned, as hopes for rapidly falling borrowing costs around the world fade.

Huw Pill said that while the Bank was “somewhat closer” to being able to cut rates, an “absence of news” meant he still believed more evidence was needed before borrowing costs could come down.

The comments add to the idea that the City has been overzealous in its forecasts about rate cuts, which traders had hoped would begin as soon as May.

The FTSE 100 had climbed as much as 0.66pc in early trading to a new intraday high of 8,076.52. However, Mr Pill’s comments sparked a sell-off that saw the market retreat from record levels.

The pullback proved short-lived and the FTSE 100 ended the day at a new high of 8,044.81, marking its second record close in a row.

Banks have been increasing their mortgage prices over the last week as they push back those expectations. HSBC on Monday became the latest lender to put up its prices after Coventry and Barclays did so last week.

The average rate on a 2-year fixed mortgage is now 5.83pc, according to Moneyfacts, up from 5.82pc on Monday.

Speaking at the London campus of the University of Chicago Booth School of Business, Mr Pill said: “We still have a reasonable way to go before I am convinced that the persistent momentum in underlying inflation has stabilised at rates consistent with achievement of the 2pc inflation target on a sustainable basis.”

Referencing a speech he made in Cardiff in March when he said that rate cuts were “some way off”, Mr Pill said: “Taken together, the absence of news and the passage of time have brought a Bank Rate cut somewhat closer. But the same absence of news gives me no reason to depart from the baseline that I established in Cardiff.”

The Bank of England has voted to hold interest rates at 5.25pc for five consecutive meetings since September 2023 in its bid to tame runaway inflation, which peaked at 11.1pc in October 2022.

Inflation has since cooled to 3.2pc in March but is still above the Bank’s 2pc target. High wage growth and high services inflation have sparked warnings from the Bank that inflation could prove persistent.

Jonathan Haskel, one of the Bank’s more hawkish rate-setters, warned that the UK labour market was still “very tight” and that this was central to the inflation outlook.

Speaking at the Bayes Business School on Tuesday, Mr Haskel said: “Where we are going depends strongly on V/U [the vacancies to unemployment ratio] and the labour market.”

This measure has been falling “rather slowly”, he added.

Signs of strong economic growth also dampened hopes of an early rate cut. Business output jumped to an 11-month high in April, according to the S&P Global Flash UK purchasing managers’ index (PMI), driven by a big jump in services.

The index, which is a key lead indicator of economic activity, suggests the UK economy will grow by 0.4pc between April and June, after a 0.3pc rise in the first three months of the year.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “Early PMI survey data for April indicate that the UK economy’s recovery from recession last year continued to gain momentum.”