The International Monetary Fund has warned that UK consumers will experience the highest inflation among G7 nations this year and next. In its latest World Economic Outlook, the IMF revised up its UK inflation forecast to 3.4% for 2025 and 2.5% for 2026, citing persistent price pressures.
The IMF noted that 'sticky' inflation has contributed to rising yields on UK government bonds. Athanasios Vamvakidis, IMF deputy director for monetary and capital markets, said markets are 'concerned about the UK economy' and are seeking more details on fiscal plans, leading to higher yields compared to other advanced economies.
Despite the inflation outlook, the IMF modestly upgraded its UK growth forecast for 2025 to 1.3%, making it the second-fastest growing G7 economy after the US. However, the 2026 growth forecast was trimmed to 1.3% amid labour market concerns.
IMF chief economist Pierre-Olivier Gourinchas described many UK inflation drivers as 'temporary factors' such as water bills and rail price rises, but warned of risks from higher wage growth and inflation expectations. He advised the Bank of England to be 'very cautious' in easing monetary policy.
The IMF also highlighted global risks, including a potential 'sharp correction' in US stock markets, which it described as complacent about AI-driven valuations. Global GDP growth was upgraded to 3.2% for 2025, but the outlook remains 'dim' due to tariff impacts and other uncertainties.
