Warning of inflation and high interest rates from the IMF to England

The International Monetary Fund (IMF) stated that if inflationary pressures continue to persist in the UK, it may be necessary to increase the policy rate further and for interest rates to remain high for a longer period of time.

The IMF Executive Board has completed its Article 4 assessment of the UK economy.

Consequently, the IMF expects the UK economy to grow by 0.4 percent this year and rise to around 1 percent in 2024 and around 2 percent in 2025 and 2026.

Inflation is expected to ease to 5.25 percent by the end of this year due to falling energy prices and other developments, while inflation is expected to fall below the 2 percent target level by mid of 2025.

short and medium term risk for the UK economy; price and wage levels exceed expectations, leading to high inflation.

THE UNCERTAINTY CONTINUES

In the assessment, it was noted that the IMF Executive Board is of the view that the UK economy remains uncertain despite having passed the risk of recession this year, that there are risks to suppress growth, and that persistently high inflation will be the biggest challenge for short-term policies.

In its assessment, the IMF Executive Board welcomed the Bank of England’s (BoE) interest rate hike by 50 basis points on June 22 against inflationary pressures and agrees that continued review of its size. If inflationary pressures continue, it may be necessary to increase the policy rate further and keep interest rates high for a longer period of time.

Annual inflation in the UK held steady at 8.7 percent in May.

The BoE continued the tightening policy it has been implementing since December 2021 to reduce inflation, raising the policy rate by 50 basis points on June 22, 13 times in a row, to 5 percent. (AA)