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Countries including the UK and the US are “seeing some persistence\u201d in inflation that might mean interest rates have to stay \u201chigher for even longer\u201d, the International Monetary Fund (IMF) has warned. <\/p>\n
The body also said elections across the world had increased “uncertainty” over economic growth amid concerns over “significant swings” in policy from new governments.<\/p>\n
The IMF maintained its forecast that the world economy will grow by 3.2% in 2024, but pointed towards slightly stronger growth in 2025 at 3.3%.<\/p>\n
It also confirmed an upgrade to the UK’s outlook for 2024 to 0.7%, but kept its forecast for 2025 unchanged. <\/p>\n
It comes ahead of fresh UK inflation figures on Wednesday, which could help to determine whether the Bank of England cuts interest rates next month.<\/p>\n
The Bank has repeatedly put up interest rates to try to control inflation, creating pain for borrowers. Rates are currently at a 16-year high of 5.25%.<\/p>\n
UK inflation – which measures the pace of price rises – has fallen sharply since last year to 2%, in line with the Bank of England’s official target. However, price rises in the important services sector remain high.<\/p>\n
IMF chief economist Pierre Olivier Gourinchas said the UK was \u201cin some ways similar\u201d to the US in terms of sticky inflation.<\/p>\n
In its latest outlook update, the IMF said: “The momentum on global disinflation is slowing, signalling bumps along the path.<\/p>\n
“The risk of elevated inflation has raised the prospects of higher-for-even-longer interest rates, which in turn increases external, fiscal, and financial risks.”<\/p>\n
However, on markets for UK government debt, the effective interest rate on a two-year gilt fell below 4% for the first time this year. This suggests increasing optimism that rates will be coming down soon.<\/p>\n
This is likely to continue the brewing mortgage price war, with fixed rates coming down even before the Bank makes its next rates decision on 1 August. <\/p>\n<\/div>\n
While the IMF raised its global growth outlook for next year slightly, its forecast for US growth in 2024 was downgraded to 2.6%, below the 2.7% forecast in April, due to a “slower-than-expected start to the year”.<\/p>\n
The IMF said political uncertainty linked to elections around the world could affect its projections.<\/p>\n
It said it was \u201ctoo early\u201d to assess the economic policies of the new Labour government, but noted that some of Sir Kier Starmer’s plans were in keeping with the IMF\u2019s detailed advice in its annual review of the British economy.<\/p>\n
Separately it said that the \u201cdirection of travel\u201d on US borrowing was of concern, as America’s national debt continues to rise.<\/p>\n
Higher public borrowing tends to drive up government borrowing costs which can have a knock-on effect on mortgage rates and other consumer loans. <\/p>\n
“The potential for significant swings in economic policy as a result of elections this year, with negative spill-overs to the rest of the world, has increased the uncertainty around the baseline,” the IMF said.<\/p>\n
It added that a rise in trade barriers such as export restrictions and tariffs also posed a risk to the global economy. <\/p>\n
More than 3,000 such measures were brought in last year, up from an already-high level of 1,000 in 2019.<\/p>\n
The IMF said these policies could trigger retaliation and a “costly race to the bottom”.<\/p>\n
“We see an explosion in the number of trade restrictive measures,” said Mr Gourinchas.<\/p>\n
“One concern we have is that going forward, this will weigh down on global activity.”<\/p>\n<\/div>\n