14 October 2025
If you are covering the IMF’s latest world economic outlook report and specifically the forecasts for the UK, please find below a comment from Lindsay James, investment strategist at Quilter:
“Despite the small uptick in growth forecasts from the IMF, today’s report is not welcome reading for the Treasury ahead of what is a crucial Budget in just over a month’s time. It will be unwelcome news that the UK is now forecast to see inflation averaging 3.4% in 2025, up from 3.2% in the IMF’s April report. This is no great surprise given inflation is currently at 3.8% and is expected by the Bank of England to peak at around 4% in the fourth quarter, but even still the UK is facing an inflation problem that it is struggling to extract itself from.
“Whilst persistent higher inflation risks changing consumer spending patterns and creating a wage-price spiral, the most recent employment report out today showed that wage inflation has barely changed in recent months, with average weekly earnings excluding bonuses 4.7% higher in the June-August period than a year earlier, only fractionally weaker than the 4.8% recorded in the 3 months to July. The inherent shortage of workers in many areas of the economy combined with demographic challenges seems likely to keep wage inflation relatively persistent.
“Furthermore, as we move through 2026 then pressures that are expected to be ‘one offs’ such as higher national insurance for employers and the step change in the minimum wage will wash out of the figures. Whether the next Budget introduces more ‘one-off’ hikes however remains to be seen; legislation such as the Extended Producer Responsibility scheme, which comes in this month, is expected by the BoE to add 0.5% to food inflation if fully passed on to consumers. A group of water companies recently won a legal case to increase prices by an average of 3%, whilst food prices continue to feel the effects not only of higher labour costs and poor harvests but also continued trade frictions with Europe. The inflation news is not particularly positive at the moment.
“This should be a shot across the bows for Rachel Reeves. The next Budget must not push yet more costs onto businesses at a time when inflation risks becoming more embedded; it ultimately ends up being shouldered largely by consumers, the very ‘working people’ she has said she wants to protect. She will need to come to the despatch box with genuinely pro-growth policies or face the reality that spending will need to be reined in to ease the nation’s debt burden. It is an unenviable position given neither are particularly easy to achieve.”
