Britain faces highest rate of inflation of G7 countries, warns IMF

Consumers in the UK are expected to sustain the highest inflation in the G7 group of leading economies this year and next, the International Monetary Fund has warned.

- Heather Stewart

As policymakers gathered in Washington for the IMF's annual meetings, the organisation said prices would rise in Britain at a faster pace in 2025 and 2026 than it had forecast in its last update in July.

According to the fund's latest World Economic Outlook, published yesterday, UK inflation is on course to average 3.4% this year, up from its previous estimate of 3.2%, and then slow slightly to 2.5% next year, up from its former prediction of 2.3%.

As Rachel Reeves prepares to fly to the US capital in the run-up to her crunch budget next month, the IMF's experts cited "sticky" inflation as one reason that yields, or interest rates, on British government bonds have been rising.

The chancellor intends to use tax rises and spending cuts in the budget to build up a larger financial buffer against her fiscal rules, in part to insulate the government from bond market instability.