The International Monetary Fund has warned that UK inflation is set to rise to the highest level among G7 economies in 2025 and 2026. In its World Economic Outlook, the fund said price growth in the UK would pick up more sharply in both years than in July projections. It also raised its forecast for UK growth in 2025 while trimming the outlook for 2026, amid concerns over the labour market.

Official data from the Office for National Statistics show consumer price index inflation at 3.8% in July and August, the highest since January 2024. The rise has been linked to faster price growth for food and hospitality services, with firms noting higher labour costs and tax costs. The IMF now expects inflation to average 3.4% in 2025 and 2.5% in 2026, though both readings stay above the Bank of England’s 2% target. The IMF also projects UK growth of 1.3% for 2025, up from 1.2%, and 1.3% for 2026, with global growth for 2025 raised to 3.2% as economies show resilience amid tariff pressures.

The IMF analysis said that households and businesses front-loaded spending and investment in anticipation of higher tariffs, providing a temporary boost to global activity in early 2025. The forecast prompted reactions from UK politicians, with the chancellor welcoming the upgrade while emphasising that more is needed to ease the cost of living, and the opposition arguing for tighter control of spending to support borrowing and taxation.