Economic body suggests slow and steady policy appropriate amid lingering inflation fears
The UK is expected to see hotter inflation than any other country in the G7 group of top economies this year and in 2026 – a trend that should lead the Bank of England to tread carefully when it comes to cutting rates, according to the International Monetary Fund (IMF).
The organization’s chief economist Pierre-Olivier Gourinchas said on Tuesday that the central bank should factor sticky inflation into its plans for interest rates next year, with the consumer price index (CPI) expected to average 3.4% in 2025 – compared with a prior forecast of 3.2% – and slide to 2.5% in 2026.
“The path forward for the Bank of England should be very cautious in its easing trajectory and make sure that inflation is on the right track,” Gourinchas said, noting lingering risks including higher than expected wage growth.
The BoE’s rate policy has been in the spotlight in recent weeks with conflicting signals emerging from decisionmakers on its likely path ahead.
On Tuesday, Alan Taylor – an external member on the Bank’s Monetary Policy Committee – flagged the risk of a “bumpy landing” for the economy, and said rate cuts were necessary to ease economic tensions.
“By maintaining what I think is a too restrictive path of interest rates, we may have braked too hard, such that inflation cannot smoothly return to target with the economy close to potential,” he said.
But fellow BoE official Catherine Mann has indicated she believes rates need to stay higher for longer to restore consumer confidence in the economy and get the UK spending again.
UK government bond yields have crept upwards in recent weeks, a rise attributed by IMF economists to continuing unease about the national inflation outlook.
The organization also suggested mixed signals for the economy next year. In 2026, it expects the UK’s growth to trail only the US among G7 nations, but it downgraded that expected growth to 1.3% as labour market concerns linger.
