UK (Commonwealth) _ The International Monetary Fund (IMF) predicted that the Bank of England would need to increase interest rates at least once more and maintain them there for the majority of 2024.
The UK is expected to have the highest inflation among competitor G7 main economies this year and next, according to the IMF’s world economic outlook report, and “low-growth performance” this year. According to IMF senior economist Pierre-Olivier Gourinchas, the Bank of England will hike interest rates by another quarter point to 5.5 percent before stopping.
He added that the outlook for the UK was one of “fairly subdued growth momentum, cooling labor market, but quite persistent inflation.” This will necessitate maintaining restrictive monetary policy well into the following year. The UK economy will develop at the slowest rate among the G7 nations, according to a revised UK growth prediction for next year, which was lowered from 1% to 0.6%.
The IMF prediction, according to HM Treasury, does not account for recent economic changes.Additionally, it was constructed in advance of recent hostilities between Israel and Hamas, which could have an impact on oil transportation and supply. The IMF reduced its 2024 projection to 2.9% while keeping its 2023 forecast for global GDP growth at 3%.
However, it stated that it was still concerned about “risks around China’s property crisis, volatile commodity prices, geopolitical fragmentation, and a resurgence in inflation.” It claimed that the data leans to a “soft landing” rather than a recession.
The pandemic’s lingering effects, the war in Ukraine, and the country’s growing fragmentation, together with rising interest rates, extreme weather occurrences, and dwindling fiscal assistance, are all stifling the economy’s potential growth, according to the IMF.
A major international organization has warned that in order to stop price increases, the UK may have to deal with high interest rates for an additional five years. The UK will have the greatest inflation and the slowest growth among the G7 nations, which also include the US, France, Germany, Canada, Italy, and Japan, according to the International Monetary Fund (IMF). The Treasury, in contrast, has argued that the IMF’s report omitted the most recent revisions to UK growth. Before the most recent events in Israel, the report was already completed.
In July last year, the IMF predicted a 3.2% rise in the UK’s economy for 2022. Early in 2022, this percentage was raised to 4.1%. However, according to official UK numbers issued this month, the UK’s GDP would really grow by 4.3% in 2022. In 2023, the UK is expected to expand faster than Germany, according to the IMF’s most recent biannual prediction, preventing it from being the slowest-growing G7 economy.
Despite this, the IMF has reduced the UK’s growth prospects for the next year, projecting a 0.6% gain. If this is accurate, the UK would grow at the slowest rate among industrialized nations in 2024, which is widely expected to be a year with a general election. The IMF emphasizes the need to keep interest rates high in order to control inflation, which has been dropping but has stubbornly remained above the target.
Raising rates, according to the hypothesis, would make borrowing more expensive, which would reduce consumer spending and maybe slow down firm price increases. This is a delicate balancing act, though, as rate increases that are too aggressive can harm the economy and businesses. The IMF predicts that this year and next, the UK will have the highest inflation rates among the G7 nations.
Will interest rates increase or decrease? Analysts now forecast that UK interest rates would likely stay between 5.25% and 5.50% in 2023 before declining to 4.75% by the end of 2024 after rising to 5.25% in July 2023. However, such projections remain subject to alter as UK inflation continues to be more persistent.
