IMF sees higher energy prices and interest rates hitting UK growth

The International Monetary Fund has forecasted that higher energy prices and rising long-term interest rates will negatively impact British economic growth in the coming year, despite increasing its prediction for expansion this year. According to the IMF's update to the World Economic Outlook, Britain's economy is expected to expand by 1.3% in 2023, up from earlier estimates of 1.0% in July and 0.8% in April.

However, the growth is projected to slow to 1.2% in 2024, placing Britain in the middle of the pack among major advanced economies.

The IMF attributes the slowdown to the impacts of higher energy prices and long-term interest rates on consumption and investment. It notes that long-term government borrowing costs in Britain reached their highest level since 1998 last week, while the Bank of England anticipates global energy price surges to drive inflation above 4% early in 2026.

The IMF expects British inflation to average 3.3% in 2026 and 2.8% in 2027, aligning closely with its projections for the euro zone and the United States. Unemployment is also anticipated to rise to an average of 5.3% this year and next, up from 4.9% in the three months to the end of July.

In its recommendations, the IMF urges global central banks to expedite interest rate hikes where public confidence in their inflation targets has weakened, and to resist any temptation to allow inflation to exceed targets or to indulge in excessive borrowing. Unlike the European Central Bank or the US Federal Reserve, the Bank of England has not raised interest rates since the onset of the US-Iran war in February.