BBC business reporter
The Bank of England could cut interest rates three more times this year despite the UK grappling with higher-than-expected inflation, the International Monetary Fund (IMF) has said.
The organisation predicted UK inflation would be the highest in the world’s advanced economies this year at 3.1%, largely due to higher bills, including for energy and water.
The fund also said the UK economy would grow less than previously predicted, up 1.1% in 2025 instead of 1.6%, because of the global fallout from US trade tariffs.
The report comes as top economic policymakers meet in Washington this week at the IMF’s spring gathering.
The downgrade in the outlook for the UK economy is nevertheless ahead of predictions for France, Italy and Germany.
US President Donald Trump’s tariffs, a steep increase in borrowing costs and a hit from inflation all contributed to the downgrade.
IMF chief economist Pierre-Olivier Gourinchas told reporters that the IMF expected three more interest rate cuts by the Bank of England in 2025 after a quarter-point cut in February.
The report said that the spike in inflation expected this year would be a “temporary phenomenon” which would leave room for rate cuts.
However, Trump tariffs could also push down the pace of UK price rises as goods are diverted away from the US.
The IMF expects UK inflation to slow to 2.2% by 2026, close to the Bank’s 2% target.
In response to the predictions, Chancellor Rachel Reeves highlighted how the IMF still saw stronger economic growth in the UK in 2025 than in Europe’s other big countries.
“The report also clearly shows that the world has changed, which is why I will be in Washington this week defending British interests and making the case for free and fair trade,” Reeves said.
She is due to meet US Treasury Secretary Scott Bessent where she is expected to make Britain’s case for a trade agreement with Washington that would lower or eliminate US tariffs on British goods.
Tariff ‘test’
Mr Gourinchas said the global economy still bore “significant scars” from the “severe shocks of the past four years”.
“It is now being severely tested once again,” he added.
The US growth forecast for this year was given the biggest downgrade among advanced economies by the IMF becayse of uncertainty caused by trade tariffs.
US growth is now expected to be 1.8% this year, down from the IMF’s estimate of 2.7% in January.
Trump has made a flurry of announcements on tariffs this year – taxes charged on goods brought into the US from other countries.
In a growing trade war, the US has placed tariffs of up to 145% on Chinese goods, while China has hit back with 125% on US products.
The US has also introduced a 10% tax on goods from the vast majority of other countries, while suspending much higher rates for dozens of nations for 90 days.
Trump argues that tariffs will encourage US consumers to buy more American-made goods, increase the amount of tax raised and lead to huge levels of investment in the country.
