Interest rates are expected to be cut by the Bank of England later, in a move closely watched by households and economists.
Higher water and energy bills are set to push up inflation "quite sharply" later this year, according to the Bank of England.
Analysts predict the benchmark rate will be cut from 4.75% to 4.5%, given the recent weakness in the UK economy which has seen slow growth.
Its prediction came as the Bank cut interest rates to 4.5% from 4.75% as expected.
The Bank uses interest rates as its main tool for controlling inflation, which is currently above the Bank's target. However, inflation unexpectedly dipped at the end of last year, raising expectations of a rate cut.
Rising bills mean inflation - the rate at which prices rise - will take longer to fall back to the Bank's 2% target.
Inflation is forecast to rise again though, partly due to changes in the Budget as well as uncertainty around US President Donald Trump's threatened use of tariffs.
In a blow for the government, the Bank also halved its growth forecast for this year, although it predicted a recession would be narrowly avoided.
If he does introduce import taxes on countries, it could lead to inflationary pressure globally, causing a knock-on effect on price rises in the UK.
The government has made the growing the economy one of its key policies and last week the chancellor announced a number of measures to try to boost the UK's performance.
Why do interest rates change?
But the Bank now predicts the economy will grow by 0.75% this year, down from its previous estimate of 1.5%.
The Bank moves rates up and down to try to control inflation, which measures the pace of overall price rises.
Inflation is forecast to rise briefly to 3.7% later on this year and while the Bank expects it to ease, it will take until the latter part of 2027 instead of earlier that year to fall back to the 2% target.
By raising rates, borrowing is made more expensive, so people have less money to spend. People may also be encouraged to save more.
The Bank said it would take a cautious approach to future interest rate cuts as it weighs up a number of factors that could affect inflation, including threats of trade tariffs from US President Donald Trump.
In turn, this reduces demand for goods and slows the rate at which prices are rising.
"We'll be monitoring the UK economy and global developments very closely and taking a gradual and careful approach to reducing rates further," said Bank of England governor Andrew Bailey.
But it is a balancing act - increasing borrowing costs risks harming the economy as it discourages businesses from investing and creating more jobs.
"Low and stable inflation is the foundation of a healthy economy and it's the Bank of England's job to ensure that."
Once price rises are more under control, then the Bank will consider lowering interest rates.
Chancellor Rachel Reeves said the interest rate cut was "welcome news".
Its base interest rate heavily influences the rates High Street banks and other lenders charge customers for loans, credit cards and other finance deals.
"However, I am still not satisfied with the growth rate. Our promise in our Plan for Change is to go further and faster to kickstart economic growth to put more money in working people's pockets."
This is most obviously seen in the cost of mortgages.
In its quarterly inflation report, the Bank said economic growth had been "broadly flat since March last year".
About 629,000 households have "tracker" deals and would see an immediate impact from a rate cut. Typically, their monthly repayment would fall by about £29 as a result of the expected 0.25 percentage point cut later.
The UK economy showed zero growth between July and September.
A similar number of householders have variable rate deals, and lenders will be under pressure to cut their rates if the Bank reduces the base rate.
For the following three months, the Bank of England now expects it to shrink by 0.1% against a previous forecast for 0.3% growth.
Fixed-rate deals do not change immediately, but the expectation of further rate cuts could lead to new, or renewing, borrowers getting a better deal.
A recession is defined as two back-to-back three-month periods of economic contraction.
Savers would be hit by a base rate fall, as the return they receive from banks is likely to be cut.
For the first three months of this year, the Bank now expects the economy to grow by just 0.1%, down from its 0.3% forecast published last November.
'Gradual approach'
The latest official growth figures for the UK economy will be published next Thursday.
In December, when rates were held at 4.75%, the Bank's governor, Andrew Bailey, said it would take a "gradual approach to future interest rate cuts".
But he added: "We can't commit to when or by how much we will cut rates in the coming year."
In the minutes from that meeting, the Bank said there was uncertainty "around how the measures that had been announced in the autumn Budget were affecting growth".
Following November's meeting, Mr Bailey would not be drawn on the impact of Trump tariffs on the UK economy, saying "let's wait and see".
In the US, the central bank - the Federal Reserve - has indicated it will cut rates at a slower pace this year.
When the Bank announces its interest rates decision at 12:00 it will also share a report on where it sees inflation going in the coming months and could hint at its strategy in response.
Cutting the UK interest rate would strike a balance between "supporting an economy that appears to have ground to a complete halt and preventing inflation from taking off again", economist Paul Dales from Capital Economics told the BBC.
"Trump's tariffs are unlikely to influence UK interest rates much," he added, but wage growth being faster than the Bank's forecast could influence its decision.
The UK economy grew by less than expected in November, after not growing at all in the previous two months. A further slowdown is expected as businesses brace for rising costs from April because of budgetary changes such as rising National Insurance contributions and higher minimum wages.
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