UK inflation set to ease back faster than expected - IMF

UK inflation is set to ease back to target levels quicker than previously expected, according to projections from the International Monetary Fund.

It came as the global economic body said the global economic shock from the conflict in the Middle East was "better than feared".

The IMF's latest update to its World Economic Outlook indicated that inflation will ease back in the UK over the next year.

It said that inflation is set to drop back to the target rate of 2% set by the government and Bank of England by mid-2027.

In May, the organisation had previously indicated that it would only drop back to the target rate by the end of next year.

UK consumer price index inflation was most recently recorded at 2.8% in May, but is widely expected to increase in the coming months.

The Bank of England most recently predicted that inflation could pick up to slightly above 3.25% later this year.

Inflation projections in the UK have been somewhat tempered by a recent interim peace deal between the US and Iran, which has contributed to easing oil prices.

Nevertheless, the IMF said its global price inflation forecasts for both 2026 and 2027 were still slightly higher than its outlook report in April.

Global price inflation is set to rise to 4.7% this year from 4.1% last year on the back of higher food and energy prices, the IMF said.

It predicted that this will then cool to 3.9% next year.

However, the predictions are still 0.3 percentage points higher for 2026 and 0.2% higher for 2027 compared with its earlier forecasts.

Meanwhile, the global economy is expected to grow by 3% this year, down slightly from a previous forecast of 3.1%.

But this is expected to improve to 3.4% in 2027, up from a previous forecast of 3.2%.

The IMF maintained the predictions for UK economic growth it made in May.

In its report, the IMF said: "The global economy as a whole has, so far, weathered the shock from the war better than feared.

"Risks to the outlook are more balanced than in April but still tilted to the downside.

"The possibility of renewed Middle East conflict looms large and could extend commodity price volatility, further threaten supply chains, raise prices, and weigh on financial conditions."

The UK economy is set to grow by 1% in 2026, the IMF said.

This is 0.2 percentage points stronger than the IMF's previous outlook report in April, but is the same as the UK-focused update published in May.

Chancellor Rachel Reeves said: "The UK is the only G7 country where the growth forecast this year has been upgraded by the IMF.

"This shows we have the right economic plan to build a stronger and more secure economy.

"Our choices mean the economy is in a better position to deal with the costs of the war in Iran while kickstarting long-term growth by focusing on our three big choices – boosting AI, regional growth and strengthening trade with the EU."

By Henry Saker-Clark, Press Association Deputy Business Editor

Press Association: Finance

source: PA

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