UK Interest Rates on the Brink: IMF Predicts Three Cuts Amid Inflation Surge

The International Monetary Fund (IMF) has made a significant prediction regarding the Bank of England’s interest rates, forecasting three more cuts within this year despite the UK facing unusually high inflation. The IMF projects that UK inflation will hit a staggering 3.1%, placing it at the top among advanced economies, primarily driven by soaring energy and water bills.

In its latest report, the IMF has also revised down its growth forecast for the UK economy, now estimating an increase of just 1.1% in 2025, a drop from the previously predicted 1.6%, citing the adverse effects of global US trade tariffs. This assessment comes as world leaders convene in Washington for the IMF’s spring meeting.

Despite the downgraded outlook, the UK’s growth remains more favorable compared to prominent EU nations such as France, Italy, and Germany. IMF chief economist Pierre-Olivier Gourinchas indicated that the anticipated inflation spike is expected to be temporary, allowing for potential interest rate reductions, particularly after a quarter-point cut already made in February. By 2026, inflation is expected to slow to 2.2%, nearing the Bank of England’s target of 2%.

In reaction, UK Chancellor Rachel Reeves has emphasized Britain’s stronger growth projection relative to other major European countries, underlining her commitment to advocating for British interests during her meetings in Washington. She plans to engage with US Treasury Secretary Scott Bessent to discuss a trade agreement that would help reduce or remove US tariffs on British imports.

Gourinchas pointed out that the global economy continues to face significant challenges and ongoing tests from recent economic shocks, while downgrades in growth forecasts were notable for both the UK as well as for the US, which is now predicted to grow by only 1.8% compared to earlier estimates of 2.7%. This is largely a consequence of the trade war initiated by President Trump, who has instituted high tariffs on a variety of imported goods, justifying this move as a way to bolster American manufacturing and economic investment.