Interest rates will peak at 5.5% and remain there into next year to tackle persistently high inflation and weaker growth, the International Monetary Fund (IMF) has forecast.
Speaking at a press conference in Morocco to launch the World Economic Outlook, the IMF said the UK was on track to have the slowest growing economy among the G7 countries next year.
The G7 countries include: Canada, France, Germany, Italy, the United States, Japan and the UK.
The IMF’s chief economic counsellor said that the UK had experience a “fairly sharp” slowdown in growth this year compared to 2022. Growth has slowed from around 4.1% to 0.5%.
Growth is forecast to remain weak at 0.6% into 2024. This compares to 0.9%growth in Germany and 1.3% growth expected in France next year.
The IMF’s projections of “low growth performance” in the UK this year and next is likely to lead to another round of interest rate hikes peaking at 5.5%.
The Bank of England held the base rate at 5.25 per cent last month, causing optimism in the financial markets that interest rates had already reached their peak.
Pierre-Olivier Gourinchas, the IMF’s economic counsellor, said: “The general perspective here on the UK is we have fairly subdued growth. We have falling momentum. We have a labour market that is cooling. But inflation remains quite persistent. And that is going to require monetary policy to remain tight for a little while longer, into next year.”
