Key facts
- UK inflation is forecast to average 3.4% in 2025 and 2.5% in 2026, the IMF said.
- The UK economy is projected to grow by 1.3% in 2025 and 1.3% in 2026.
- The IMF cited "sticky" inflation and weak productivity for higher UK bond yields.
- Markets are concerned about the UK economy and seeking fiscal plans, the IMF noted.
- The IMF raised its global GDP growth forecast for this year to 3.2%.
The UK is projected to experience the highest inflation rate among G7 leading economies in 2025 and 2026, according to the International Monetary Fund's latest World Economic Outlook. The fund forecasts UK inflation to average 3.4% in 2025, an upward revision from its July forecast, and then slow to 2.5% in 2026, also higher than previously anticipated.
These projections highlight the challenge for the Bank of England in returning inflation to its 2% target. IMF chief economist Pierre-Olivier Gourinchas described many inflation drivers as "temporary factors" but warned of risks from persistent wage growth and uncertainty about inflation's trajectory, advising cautious interest rate cuts.
Markets have shown concern over the UK economy, with rising yields on UK government bonds attributed to "sticky" inflation and weak productivity, according to IMF deputy director Athanasios Vamvakidis. Chancellor Rachel Reeves is expected to address these concerns and present fiscal plans in her upcoming budget.
Despite the inflation outlook, the IMF modestly upgraded its forecast for UK economic growth to 1.3% for 2025, while slightly downgrading it for 2026 to the same rate. The IMF noted that on a per head basis, economic output growth is projected to be at the bottom of the G7 league table for both years.
Globally, the IMF raised its GDP growth forecast to 3.2% for the year, citing unexpected resilience, though it warned that the full impact of US tariffs is yet to be felt.