The International Monetary Fund (IMF) has issued a direct and cautionary message to the Bank of England, urging it to be “very cautious” about cutting interest rates in the face of persistent inflation risks. This advice came as part of the fund’s latest global report, which painted a challenging picture for the UK’s price stability.
While the IMF did provide some positive news by slightly upgrading the UK’s 2025 growth forecast to 1.3%, its primary focus was on the country’s inflation problem. The report projects that UK inflation will hit 3.4% in 2025, the highest rate in the G7, and remain elevated at 2.5% the following year—both figures being higher than previous forecasts.
Pierre-Olivier Gourinchas, the IMF’s chief economist, elaborated on the concerns. He highlighted that strong wage growth combined with shifting public expectations are creating “upside risks” for inflation. “Households and firms in the UK are becoming maybe a bit less certain that inflation is coming down quickly,” he said, justifying the need for monetary policy prudence.
The Chancellor, Rachel Reeves, focused on the growth upgrade, noting it was the second consecutive positive revision. However, the IMF’s analysis suggests that this growth is occurring in a high-pressure environment that could complicate the Bank of England’s decision-making process significantly.
The advice to delay easing monetary policy underscores the IMF’s view that tackling inflation must remain the top priority for UK authorities. The warning suggests that any premature move to lower borrowing costs could entrench high prices, posing a greater long-term threat to the economy than a temporary period of slower growth.