The International Monetary Fund (IMF) has warned that UK households will face higher-than-expected inflation due to rising energy and food prices driven by the Middle East conflict. The IMF's latest forecast indicates that global inflation will accelerate into next year as the war disrupts energy supplies. Prolonged conflict or further escalation could keep prices elevated, slow economic growth, and worsen government fiscal positions. The IMF also highlighted potential amplification from extreme weather, cyber attacks, and attacks on energy infrastructure.
The UK is set to experience faster-than-expected inflation for this year and 2027, with consumer prices projected to increase by 3.3% in 2026, up from a previous prediction of 3.2%. This would be the joint second-highest rate among G7 countries. Inflation is expected to slow to 2.8% next year, higher than the previous forecast of 2.4%. Recent data from the Office for National Statistics (ONS) showed inflation at 3.1% in August, with further increases anticipated due to rising household energy bills.
The Bank of England expects UK inflation to reach slightly above 4% in early 2027, partly due to an increase in the household energy price cap in January. However, inflation is projected to decrease later in the year. Globally, inflation is forecast to rise to 4.7% in 2026 and then slow to 4.1% in 2027, higher than previous predictions. Despite economic challenges, the UK's GDP is expected to grow by 1.3% this year, up from a previous forecast of 1%. However, growth is set to slow to 1.2% next year.
Unemployment in the UK is projected to be 5.3% this year, lower than the previous prediction of 5.6%. IMF economic counsellor Silvana Tenreyro advised the UK to continue its fiscal consolidation efforts. Chancellor John Healey emphasized the UK's resilience amid global challenges, while shadow chancellor Andrew Griffith urged addressing energy and welfare spending issues in the upcoming Budget.