Bank of England policymakers are expected to hold fire on interest rates this week and put back any increase until late summer as a consumer spending squeeze hits Britain.

Experts predict a deepening consumer spending slump will see rate setters remain in ‘wait and see’ mode until August at the earliest.

The market has widely expected the Bank’s nine-strong Monetary Policy Committee (MPC) to hike rates in May to rein in soaring inflation.

But gathering gloom on the consumer outlook is seen posing an even bigger threat to economic growth, according to economists.

Dire news from the retail sector last week confirmed plunging consumer confidence as government austerity measures kick in.

Wine retailer Oddbins became the latest well-known name to succumb to tough trading, announcing it was calling in administrators after failing to secure a rescue deal.

The blow came as major retailers from John Lewis to Currys and PC World parent Dixons Retail reported hefty sales declines, causing shares in the sector to slump.

Consumer confidence reports have also made for grim reading, with Nationwide’s reading falling in February to its lowest since records began in 2004 and last week’s GfK/NOP measure showing it stagnated near a two-year low in March.

Economists at Investec Securities said while rising inflation would continue to weigh on the minds of MPC members, their fears over the impact of Government belt-tightening would likely steady their hands.

They said: “The MPC is more likely to wait until August to raise rates, rather than jump straight in at the May meeting.

“Despite the Government’s best efforts to support the ‘squeezed middle’ in its March Budget, there is no doubt tax, benefit and public spending measures coming into effect from April will squeeze the finances of vast swathes of UK households.”

“Although we suspect the economy will cope under the pressure of such a fiscal squeeze, the precise impact is highly uncertain and there is a real downside risk to growth,” they added.

There have been a growing number of MPC members voting for a rise in rates over recent months in light of rising inflation.

At the March meeting, Andrew Sentance voted in favour of a 0.5 per cent increase, while Martin Weale and Spencer Dale backed a 0.25% rise.

Minutes of the last meeting showed the Bank feared inflation - currently running at 4.4 per cent - would push past 5 per cent in coming months as global political unrest pushed oil prices to sky-high levels.

However, few believed a change in policy would come as early as this Thursday, with the Bank expected to wait until its next inflation forecast report in May.