UK inflation to rise to highest in G7, warns IMF as food costs surge

Russ Mould, investment director at AJ Bell, said: “The UK has an inflation problem which could constrain the Bank of England’s ability to steadily cut interest rates.

“That could weigh on consumers and businesses, potentially leading to more sluggish economic growth.

“The IMF has warned the UK could have the highest rate of inflation in the G7 both this year and next year, raising its expectations to 3.4 per cent and 2.5 per cent respectively.

“That compares to a previous forecast of 3.2 per cent in 2025 and 2.3 per cent in 2026. Even though the rate of inflation might slow next year, the IMF’s prediction still puts the figure further away from the Bank of England’s 2 per cent target.

“Central banks raise rates when they’re trying to combat high inflation, and they cut them when inflation looks like it is under control.

“An inflation figure starting with ‘3’ is arguably outside of the Bank of England’s comfort zone, so it might be forced to keep interest rates steady.

“Normally that wouldn’t be such a problem if it wasn’t for a fragile jobs market.

“Central banks look at both inflation and labour when making interest rate decisions, and a weak jobs market might traditionally call for rate cuts.

“It suggests the Bank of England is stuck between a rock and a hard place.”