IMF Raises UK Inflation Forecast Amid Rising Energy Costs

The International Monetary Fund raised its 2026 UK consumer price inflation prediction to 3.3% and its 2027 forecast to 2.8%, citing rising food and energy costs driven by conflict in the Middle East. The Bank of England expects inflation to peak above 4% in early 2027 following a January energy price cap increase.

John Healey, the Chancellor of the Exchequer, defended the economy's resilience, noting that the UK is forecast to be the joint second fastest-growing G7 nation in 2026. However, the IMF projects that while GDP will grow by 1.3% this year, growth will slow to 1.2% next year. Shadow Chancellor Andrew Griffith urged the government to increase domestic drilling and reduce welfare spending to combat these pressures, warning that tax rises would slow growth.

Global economic analysis from Capital Economics suggests that sustained energy price hikes are creating headline inflation across advanced economies. Global chief economist Jennifer McKeown warned that the UK has limited fiscal maneuverability ahead of its budget, pointing to adverse bond market reactions in France as a warning. McKeown expects US CPI to reach 3.6%, a move that may prompt insurance rate hikes from the Federal Reserve, the European Central Bank, and the Bank of England.