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Rachel Reeves There has been another big blow that is set to make or break it. Budget next month after International Monetary Fund (IMF) caution UK inflation It is set to reach its highest level in the G7 in 2025 and 2026.
Chancellor in trouble It’s already struggling to boost the economic growth it promised Labor were elected last year and the latest Outlook report shows that UK households are expected to face the highest rates of price inflation among the G7 group of advanced economies, partly due to rising food and hospitality prices.
The influential economic body said price inflation in Britain would rise faster than expected in both years from July, compared with previous forecasts. It expects UK inflation to average 3.4 per cent in 2025, increasing from its previous forecast of 3.2 per cent.
The forecasts also showed that inflation in Britain is expected to slow slightly to 2.5 percent next year, but still up from the 2.3 percent predicted earlier this year.
But it also came as the IMF raised its UK growth forecast for this year but lowered its forecast for 2026 amid concerns over the labor market.
The IMF report, described as “severe”, casts doubt on the Bank of England’s expectations of returning interest rates to the 2 percent target rate in the near future.
By putting pressure on increased pensions with the triple lock guarantee and public sector pay demands, it would also risk increasing the size of the black hole in public finances, already estimated at between £30 billion and £40 billion.
A few hours later, the latest IMF report has come. The group of leading economists described Ms Reeves’ position as “disappointing”.Britain is running a structural deficit and there is dispute within Labor over whether to impose a wealth tax or break manifesto promises to increase income tax, VAT or Employees’ National Insurance.
In the world economic outlook, which came after leading politicians and central bank bosses gathered in Washington DC, the body highlighted that inflation is rising in the UK and US.
Recent data from the Office for National Statistics (ONS) showed that UK Consumer Price Index (CPI) inflation reached 3.8 per cent in July and August, the highest level since January 2024.
The increase is particularly linked to rising food and hospitality prices, with many companies and industry groups claiming it is partly driven by increased labor and tax costs.
Meanwhile, Britain’s economy is expected to grow 1.3 percent this year, after getting a boost from strong growth in the first half.
This represents an improvement over the IMF’s previous estimate of 1.2 percent.
However, the IMF has now cut its growth forecast for next year to 1.3 percent from 1.4 percent as global trade pressures threaten to hit many economies.
Canada and France also lowered their growth forecasts amid pressure from tariff barriers, while the US saw its forecasts rise slightly.
The report also raised global growth this year to 3.2 percent from 3 percent, with many economies proving more resilient than expected in the face of tariff pressures.
The IMF said growth at the start of the year exceeded expectations as spending stepped up, while many economies also benefited from smaller increases in US tariffs than originally announced.
“Households and businesses stepped up their consumption and investment in anticipation of higher tariffs,” the report said.
“This should lead to a temporary boost to global activity into early 2025.”
chancellor Rachel Reeves Said: “This is the second consecutive upgrade of this year’s growth forecast by the IMF.
“But know that this is just the beginning. For many people, our economy feels stuck.”
“Working people feel it every day, experts talk about it, and I’m going to deal with it.”
Sir Mel Stride, the Tory shadow chancellor, said: “The IMF’s assessment bears serious study. Inflation in the UK is now set to be the highest in the G7 this year and next – rising faster than expected due to the choices made by Rachel Reeves.
“Since taking office, Labor has allowed the cost of living to rise, debt to rise, and business confidence to fall to record lows. Taxes are rising to record highs and families are being squeezed on all sides.
“Labour must get spending under control to reduce borrowing and avoid damaging tax rises, but Starmer and Reeves are too weak to do that.”
But Ms Reeves seized on the improved growth projections to inject optimism into forecasts.
He said: “This is the second consecutive upgrade of this year’s growth forecast from the IMF. This is no surprise, given the UK led the G7 in growth in the first half of this year, and average disposable income has increased by £800 since the election.
“But know that this is just the beginning. For too many, our economy feels stuck. Working people feel it every day, experts talk about it, and I’m going to tackle it. Working together, we can build a Britain built for all.”