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Economic growth

UK Faces Cost of Living Blow as IMF Predicts Stubborn Inflation

Strategic Insights

— 2 min read

The UK is set for a cost of living blow at the next month's Budget, with economists predicting that interest rate cuts will be delayed as the Bank of England seeks to bring the rate of price rises under control. The International Monetary Fund (IMF) has upgraded its forecast for the UK's economic growth this year, but warned that consumer price inflation will remain high, at 3.4% this year and 2.5% next year. The UK's inflation rate is worse than comparable countries, and the IMF expects it to remain high due to changes in regulated prices, such as energy and water bills. Economists believe that the Office for Budget Responsibility (OBR) will increase its inflation forecasts at the Budget in line with the IMF's predictions.

Key Takeaways:

  • The IMF predicts the UK's GDP will grow by 1.3% this year and next year, with a 0.1 percentage point upgrade from its previous forecast.
  • Consumer price inflation is expected to be 3.4% this year and 2.5% next year, worse than other comparable countries.
  • The UK's inflation rate is higher than the latest forecasts by the Office for Budget Responsibility (OBR).
  • Regulated prices, such as energy and water bills, are expected to continue rising in 2025, partly due to changes in prices set by the Government or regulators.
  • The National Institute of Economic and Social Research (NIESR) believes that the higher minimum wage is contributing to increased prices as companies pass on the increased cost of hiring staff.
  • Oxford Economics expects the OBR to land in a similar place as the IMF when updating its forecasts next month.
  • The Bank of England is likely to delay interest rate cuts as it seeks to bring the rate of price rises under control.
  • The UK's borrowing is expected to rise due to a downgrade in the OBR's expectations of future economic growth.
  • The Chancellor will need to tighten policy by £20bn to £25bn to maintain the same slim headroom as the spring statement.
  • The IMF's forecast for the US is the second highest inflation rate in the G7, at 2.4% next year.
  • France is expected to have the lowest inflation rate in the G7, with forecasts of 1.1% in 2025 and 1.5% in 2026.
  • The global growth forecast has been upgraded from 3% to 3.2% in the report, with many economies proving more resilient than expected.

Statistics:

  • GDP growth forecast for the UK: 1.3% (2024) and 1.3% (2025)
  • Consumer price inflation forecast for the UK: 3.4% (2024) and 2.5% (2025)
  • Regulated prices expected to continue rising in 2025: 0.1 percentage points
  • Higher minimum wage contribution to increased prices: 1.1%
  • OBR forecast update expected: next month
  • Interest rate cuts delay expected: due to the Bank of England's effort to bring the rate of price rises under control
  • UK borrowing expected to rise: due to a downgrade in the OBR's expectations of future economic growth
  • Global growth forecast: 3.2% (upgraded from 3%)

Sources:

  • International Monetary Fund (IMF) - World Economic Outlook report
  • National Institute of Economic and Social Research (NIESR) - Economic Comment
  • Oxford Economics - UK Economic Forecast Update
  • The i Paper - Inflation forecasts expected to be revised upwards in the UK
  • Reuters - IMF upgrades global growth forecast, sees US inflation rising
  • Financial Times - IMF warns of UK inflation risks, upgrades global growth forecast

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