UK inflation to rise to highest in G7 as food prices surge in another blow to Reeves

UK inflation is set to climb to the highest rate among G7 countries through 2025 and 2026, the International Monetary Fund (IMF) has warned in its latest outlook report. Price inflation in the UK is now predicted to rise faster than previously forecast, with the IMF revising its average inflation expectation for 2025 up to 3.4%, higher than the July forecast of 3.2%.

Recent data from the Office for National Statistics (ONS) showed UK Consumer Prices Index (CPI) inflation holding at 3.8% in July and August 2025, the highest since January 2024. Driving this surge are increases in hospitality and food prices, which many businesses and industry leaders attribute to rising labour and tax costs.

The IMF also expects UK inflation to ease to 2.5% in 2026, but points out this figure is still above the 2.3% level predicted earlier this year.

That means UK households are forecast to experience the steepest price rises of any advanced G7 economy over the next two years.

This will pose a challenge for the Bank of England, which is attempting to bring inflation back down to the official 2% target.

Despite the inflation risk, the IMF has upgraded its UK economic growth forecast for 2025 from 1.2% to 1.3%, citing robust growth in the first half of the year. However, its outlook for 2026 has been cut from 1.4% to 1.3%, reflecting concerns over labour market tightness and weaker global trade.

Other G7 nations, such as Canada and France, have also seen their growth estimates reduced because of persistent trade and tariff pressures, while the US projection edged slightly higher.

Global economic growth for 2025 has also been revised upward from 3% to 3.2%, supported by many countries experiencing stronger-than-expected resilience against tariffs.

The IMF's report said: "Households and businesses front-loaded their consumption and investment in anticipation of higher tariffs. This gave a temporary boost to global activity in early 2025".

Chancellor Rachel Reeves said: "This is the second consecutive upgrade to this year's growth forecast from the IMF. But know this is just the start. For too many people, our economy feels stuck. Working people feel it every day, experts talk about it, and I am going to deal with it."

Shadow chancellor Sir Mel Stride said the IMF assessment made for "grim reading". He said: "Since taking office, Labour have allowed the cost of living to rise, debt to balloon, and business confidence to collapse to record lows. Taxes are rising to record highs and families are being squeezed from all sides. Working people are feeling the impact every time they shop, fill up the car, or pay their mortgage.

"Labour should be getting spending under control to bring down borrowing and avoid damaging tax rises, but Starmer and Reeves are simply too weak to do it."