The International Monetary Fund (IMF) has projected that the UK will experience the highest inflation rates among G7 economies this year and next. During annual meetings in Washington, the IMF raised its inflation forecast for the UK to an average of 3.4% for 2025, up from a previous estimate of 3.2%. The expected inflation rate for 2026 is also revised to 2.5%, slightly higher than the earlier prediction of 2.3%.
The IMF’s latest World Economic Outlook report indicates that “sticky” inflation is contributing to rising yields on UK government bonds. In light of this, Chancellor Rachel Reeves plans to implement tax increases and spending cuts in her upcoming budget to strengthen the government’s financial position and mitigate bond market fluctuations.
At a recent press conference, IMF deputy director for monetary and capital markets, Athanasios Vamvakidis, acknowledged market concerns regarding the UK economy, highlighting issues such as above-target inflation and weak productivity. He noted a demand for more details on the UK’s fiscal plans, which has resulted in elevated yields compared to other advanced economies.
The IMF has slightly increased its forecast for UK economic growth from 1.2% to 1.3% for the current year, while downgrading the growth estimate for 2026 to 1.3%. This positions the UK as the second fastest-growing economy in the G7, following the United States, which is projected to see a GDP expansion of 2%.
IMF chief economist Pierre-Olivier Gourinchas mentioned that several factors driving UK inflation are temporary, such as increases in water bills and rail fares. He cautioned that uncertainties regarding wage growth and inflation persistence could influence the monetary policy direction of the Bank of England.
Additionally, the IMF adjusted its global GDP growth forecast for the year up to 3.2%, attributing unexpected resilience to the global economy despite recent challenges, including tariffs introduced during the Trump administration. Concerns persist regarding the future, such as risks to US growth and the potential for corrections in stock markets.
Source: https://www.theguardian.com/business/2025/oct/14/uk-faces-highest-inflation-in-g7-this-year-and-next-imf-warns