Rachel Reeves says the UK has the ‘right economic plan’ (Image: Getty)
Inflation in the UK is set to ease back to target levels faster than previously expected, the International Monetary Fund (IMF) has suggested.
It said that inflation, which is the rate of price increases on goods and services, is set to drop back to the target rate of 2% set by the Government and Bank of England by mid-2027.
UK consumer price index (CPI) inflation was 2.8% in May but is widely expected to increase in the coming months.
In its report, the IMF said: “The global economy as a whole has, so far, weathered the shock from the [Iran] war better than feared.
“Risks to the outlook are more balanced than in April but still tilted to the downside.
“The possibility of renewed Middle East conflict looms large and could extend commodity price volatility, further threaten supply chains, raise prices, and weigh on financial conditions.”
The Bank of England has predicted that inflation could pick up to slightly above 3.25% later this year.
The UK economy is set to grow by 1% in 2026, the IMF said.
This is 0.2 percentage points stronger than the IMF’s previous outlook report in April, but is the same as the UK-focused update published in May.
Shadow Chancellor, Sir Mel Stride said: “The IMF’s forecast shows growth slowing – yet another reminder that this Labour government is out of its depth. With more taxes and borrowing on the horizon under Burnham, Labour look set to double down on all of the mistakes they have already made. Unemployment is continuing to rise, as is the cost of living for families.”
Chancellor Rachel Reeves said the UK is the only G7 country where the growth forecast this year has been upgraded by the IMF.
She added: “This shows we have the right economic plan to build a stronger and more secure economy.
“Our choices mean the economy is in a better position to deal with the costs of the war in Iran while kickstarting long-term growth by focusing on our three big choices – boosting AI, regional growth and strengthening trade with the EU.”
“The possibility of renewed Middle East conflict looms large and could extend commodity price volatility, further threaten supply chains, raise prices, and weigh on financial conditions.”