The International Monetary Fund (IMF) has warned that inflation in countries like the UK and the US is proving “persistent,” potentially requiring interest rates to remain elevated for a prolonged period. This persistence in inflation, particularly in the services sector, continues to challenge central banks despite efforts to control rising prices.
The IMF maintained its global growth forecast at 3.2% for 2024, with a slight improvement to 3.3% expected in 2025. Notably, it upgraded the UK’s 2024 growth outlook to 0.7% but left the 2025 forecast unchanged. However, the IMF downgraded the US growth forecast for 2024 from 2.7% to 2.6%.
Economic Uncertainty Amid Elections
Political uncertainty linked to global elections is adding unpredictability to economic projections, with concerns over possible shifts in policy affecting growth prospects. The IMF also pointed out that rising trade barriers, such as tariffs and export restrictions, pose additional risks, potentially leading to global economic slowdowns.
UK Inflation and Interest Rates
UK inflation has significantly dropped to 2%, in line with the Bank of England’s target. However, inflationary pressure remains in the services sector, raising concerns about the timing of potential interest rate cuts. The Bank’s rates currently sit at a 16-year high of 5.25%, contributing to higher borrowing costs and a challenging mortgage market. The IMF suggested that optimism about falling rates could drive a “mortgage price war,” as fixed-rate mortgages are starting to decrease even before the Bank’s next decision in August.
Trade Barriers and Global Risks
The IMF highlighted the rise in trade barriers as a growing threat to the global economy, with over 3,000 restrictive measures implemented last year. Such actions could lead to retaliatory policies, which the IMF warned would result in a “costly race to the bottom” that could slow global economic activity.