Britain’s inflation rate is now expected to return to its target level sooner than previously anticipated, according to fresh projections from the International Monetary Fund (IMF).
The global economic body’s latest World Economic Outlook indicates a significant easing of price rises across the UK over the next year. This more optimistic assessment comes as the IMF noted that the worldwide economic impact of the Middle East conflict has been “better than feared”.
The fund specifically forecasts that inflation will drop back to the 2 per cent target, set by the Government and the Bank of England, by mid-2027.
In May, the organisation had previously indicated that it would only drop back to the target rate by the end of next year.
UK consumer price index (CPI) inflation was most recently recorded at 2.8 per cent in May, but is widely expected to increase in the coming months.
The Bank of England most recently predicted that inflation could pick up to slightly above 3.25 per cent later this year.
Inflation projections in the UK have been somewhat tempered by a recent interim peace deal between the US and Iran, which has contributed to easing oil prices.
Nevertheless, the IMF said its global price inflation forecasts for both 2026 and 2027 were still slightly higher than its outlook report in April.
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Global price inflation is set to rise to 4.7 per cent this year from 4.1 per cent last year on the back of higher food and energy prices, the IMF said.
It predicted that this will then cool to 3.9 per cent next year.
However, the predictions are still 0.3 percentage points higher for 2026 and 0.2 per cent higher for 2027 compared with its earlier forecasts.
Meanwhile, the global economy is expected to grow by 3 per cent this year, down slightly from a previous forecast of 3.1 per cent.
But this is expected to improve to 3.4 per cent in 2027, up from a previous forecast of 3.2 per cent.
The IMF maintained the predictions for UK economic growth it made in May.
In its report, the IMF said: “The global economy as a whole has, so far, weathered the shock from the war better than feared.
“Risks to the outlook are more balanced than in April but still tilted to the downside.
“The possibility of renewed Middle East conflict looms large and could extend commodity price volatility, further threaten supply chains, raise prices, and weigh on financial conditions.”
The UK economy is set to grow by 1 per cent in 2026, the IMF said.
This is 0.2 percentage points stronger than the IMF’s previous outlook report in April, but is the same as the UK-focused update published in May.
Chancellor Rachel Reeves said: “The UK is the only G7 country where the growth forecast this year has been upgraded by the IMF.
“This shows we have the right economic plan to build a stronger and more secure economy.
“Our choices mean the economy is in a better position to deal with the costs of the war in Iran while kickstarting long-term growth by focusing on our three big choices – boosting AI, regional growth and strengthening trade with the EU.”
