The International Monetary Fund (IMF) stated that if inflationary pressures continue to persist in the UK, it may be necessary to raise the policy rate further and interest rates to remain high for a longer period of time.
The IMF Executive Board has completed its assessment of the British economy under Article 4.
Accordingly, the IMF expects the UK economy to grow by 0.4 percent this year, and to increase to around 1 percent in 2024, and around 2 percent in 2025 and 2026.
Inflation is expected to decline to 5.25 percent by the end of this year due to the fall in energy prices and other developments, while inflation is expected to fall below the targeted 2 percent level by mid-2025.
short and medium term risk to the British economy; price and wage levels exceed expectations, leading to high inflation.
In the evaluation, it was noted that the IMF Executive Board is of the opinion that the British economy continues to harbor uncertainties even though it has overcome the risk of recession this year, that there are risks that will suppress growth, and that high and persistent inflation will be the biggest challenge for short-term policies.
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 said, “Given the economic outlook and the risks and uncertainties regarding persistent inflation, directors agree that the pace of monetary tightening and “Agrees that a continuous review of its size is necessary. If inflationary pressures continue to persist, it may be necessary to raise the policy rate further and keep rates high for a longer period of time.”
Annual inflation in the UK remained stable at 8.7 percent in May.
BoE continued the tightening policy it has been implementing since December 2021 to reduce inflation, increasing the policy rate by 50 basis points on June 22, 13 times in a row, to 5 percent.