UK Inflation Remains Stubbornly High, Despite G7 Growth Forecast Upgrade

Strategic Insights -

The International Monetary Fund's upgraded growth forecast for the UK to 1.3% from 1.2% has been met with skepticism, as inflation remains a pressing concern. With inflation forecast to hit 3.8% in the year to September, the highest in the G7 group of advanced economies, the UK's economic growth is overshadowed by the high prices that consumers are facing.

Key Takeaways:

  • The IMF warned that UK inflation will be the highest in the G7 group of advanced economies in 2025 and 2026, averaging 3.4% this year, 0.8 percentage points higher than the 2.6% forecast in last year's budget by the Office for Budget Responsibility.
  • The UK inflation rate, as measured by the consumer prices index, has been stubbornly high, rising almost continuously from below 1% in early 2021 to 11.1% in October 2022, the highest in 41 years.
  • Inflation has not come down since then, and the downward trend started to reverse in October last year, with CPI standing at 3.8% since July, the highest since January this year.
  • The price rises of the past five years are expected to remain, with consumer prices increasing by 20.8% between May 2021 and May 2024, according to the House of Commons Library.
  • The tax take for April to September was £438.6 billion, £32.1 billion more than over the same time last year, due in part to the rise in employer national insurance and the national living wage in April.
  • Chancellor Rachel Reeves is responsible for fiscal policy, which affects the economy and, ultimately, prices, and has already played a part in the high inflation through her policies, such as the national insurance raid earlier this year.

Statistics:

  • Inflation forecast for UK: 3.8% in the year to September
  • Inflation forecast for G7 group of advanced economies: highest in 2025 and 2026
  • Average inflation rate this year: 3.4%
  • Increase in consumer prices between May 2021 and May 2024: 20.8%
  • Tax take for April to September: £438.6 billion, £32.1 billion more than last year

Sources:

  • Office for Budget Responsibility (2022) - Forecast for inflation in last year's budget
  • House of Commons Library (2024) - Increase in consumer prices between May 2021 and May 2024
  • International Monetary Fund (2023) - Upgrade of growth forecast for the UK