Chancellor Rachel Reeves has been given an upbeat assessment of the UK by the International Monetary Fund which expects the UK to have the second-fastest growth among advanced economies next year.
The rates of growth remain modest at 1.3% for this year and next, but those forecasts would see the UK outperform all the other G7 economies apart from the US in 2025, slipping back to third fastest in 2026.
However, it also says the UK will have the highest annual average inflation in the G7 economies in 2025 and 2026, at 3.4% and 2.5% respectively because of high energy and utility bills.
UK inflation is forecast to average 3.4% this year and 2.5% in 2026 but the IMF says this will be “temporary”, and fall to 2% by the end of next year.
The G7 is made up of the UK, US, France, Germany, Italy, Canada and Japan. It excludes China and India which are two of the world’s biggest economies.]Germany, France and Italy are all forecast to grow far more slowly than the UK at rates of between 0.2% and 0.9% in 2025 and 2026.
Ms Reeves, who will be in Washington DC on Wednesday for the IMF and World Bank annual meetings, said the forecast was welcome, but admitted that “for too many people, our economy feels stuck. Working people feel it every day, experts talk about it, and I am going to deal with it.”
She will present her second budget on 26 November amid concerns that she will raise taxes on business.
Shadow chancellor Sir Mel Stride said the inflation reading was “grim” and said households “were being squeezed from all sides”.
Professor Joe Nellis, economic adviser at accountancy firm MHA, said the persistence of inflation “limits the Bank of England’s room to cut interest rates further and complicates the Treasury’s task of stimulating much-needed growth.
“The silver lining in the IMF’s report is that the UK’s inflationary pressures are largely “temporary,” with the labour market expected to loosen and wage growth to moderate.”
Chris Beauchamp, chief market analyst at IG, said: “The IMF’s growth forecast for the UK might be reasonably optimistic, but the upward pressure on prices, and thus on consumer wallets, remains a major problem for the government.
“Once more it is the UK’s high energy costs that are the driver, something that needs urgent attention. It will also complicate the BoE’s position, since it will find its hands tied if inflation remains strong, unable to play the role of supporting the economy in a manner similar to the Fed in the US.”
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