The International Monetary Fund (IMF) predicts that the Bank of England will cut interest rates three more times this year to combat rising inflation, with a forecasted rate of 3.1% expected in the UK.
The International Monetary Fund (IMF) has predicted that the Bank of England will cut interest rates three more times this year to battle rising inflation. The UK is expected to see higher-than-expected inflation, ‘with a forecasted rate of 3.1% this year, making it the highest in advanced economies.’
Higher bills, including energy and water costs, are largely driving the predicted inflation rate. The global fallout from US trade tariffs also contributes to the downgrade. ‘Trump tariffs could divert goods away from the US, potentially slowing down price rises.’
The Consumer Price Index (CPI) measures UK inflation, which is the rate at which prices for goods and services are rising.
The Bank of England sets an inflation target of 2% to maintain price stability.
High inflation can erode purchasing power and reduce economic growth.
Factors contributing to UK inflation include global commodity prices, energy costs, and domestic demand.
According to the Office for National Statistics (ONS), CPI inflation averaged around 1.9% between 2010 and 2020.
The IMF has downgraded its forecast for UK economic growth in 2025, predicting a 1.1% increase instead of the previously predicted 1.6%. This change is attributed to the global impact of US trade tariffs and increased borrowing costs.
IMF chief economist Pierre-Olivier Gourinchas stated that the global economy is still recovering from the ‘severe shocks’ of the past four years. The recent economic downturn has left significant scars, with the current economic environment being severely tested once again.
Chancellor Rachel Reeves emphasized that while the IMF predicts stronger growth in the UK compared to Europe‘s other major countries, the report highlights the need for free and fair trade. She plans to meet US Treasury Secretary Scott Bessent to discuss a potential trade agreement with Washington that would lower or eliminate US tariffs on British goods.
Rachel Reeves is a British politician serving as the Member of Parliament for Leeds West.
She was appointed as the UK's new Chancellor of the Exchequer in October 2023, replacing Jeremy Hunt.
Reeves has been a key figure in the Labour Party, focusing on economic policy and fiscal responsibility.
As Chancellor, she aims to promote economic growth, reduce inequality, and invest in public services.
The US has imposed tariffs of up to 145% on Chinese goods, while China has retaliated with 125% tariffs on US products. The US has also introduced a 10% tax on goods from most countries, although some rates have been paused for 90 days. ‘President Trump believes these measures will encourage domestic consumption and increase investment in the country.’
The United States imposes tariffs on imported goods to protect domestic industries and generate revenue.
Tariffs are taxes on foreign-made products, typically set as a percentage of the product's value.
The US government uses tariffs to address trade imbalances, enforce trade agreements, and support specific sectors.
For example, Section 301 tariffs were imposed on Chinese imports due to concerns over intellectual property theft and unfair trade practices.
Despite the downgrade, Chancellor Reeves highlighted that the IMF still predicts stronger economic growth in the UK compared to other major European economies. The report emphasizes the need for policymakers to address inflation and balance trade agreements with the global economy’s changing landscape.
