LONDON

The UK inflation is set to rise to the highest level among the G7 nations in 2025 and 2026, according to new forecasts from the International Monetary Fund (IMF) on Tuesday.

In its latest outlook report, the IMF said it expects UK inflation to average 3.4% in 2025, up from its April forecast of 3.1%.

Inflation is then predicted to ease to 2.5% in 2026, compared with 2.2% forecast earlier this year.

By contrast, inflation in the euro area is expected to average 2.1% this year and fall to 1.9% next year.

“In the UK, headline inflation, which started picking up in 2024, is expected to continue rising in 2025 partly because of changes in regulated prices. This is projected to be temporary, with a loosening labor market and moderating wage growth eventually helping inflation return to target at the end of 2026,” the global lender said.

The IMF also warned that rising trade tensions are adding to price pressures, pointing to “increasing signs that the adverse effects of protectionist measures are starting to show.”

Despite the warning on inflation, the IMF slightly upgraded its forecast for UK growth. It now expects the economy to expand by 1.3% in 2025, up from 1.1% previously, while growth for 2026 has been trimmed to 1.3%, down from 1.4%.

"While this reflects strong activity in the first half of 2025 and an improvement in the external environment, including through the UK-US trade deal announced in May, the projected growth in 2025–26 is still lower by a cumulative 0.4 percentage point compared with the forecast in October 2024,” the IMF said.