A major global economic report has issued an inflation alert for the G7, with the United Kingdom projected to lead the pack with the highest rate of price increases in both 2025 and 2026. The forecast, which puts UK inflation at 3.4% next year, comes with a direct warning for the Bank of England to be “very cautious” about easing monetary policy.
The report’s authors attribute the UK’s persistent inflation to a combination of strong wage growth and sticky public expectations. The chief economist noted a growing belief among British households and firms that high inflation is here to stay, a sentiment that can make the central bank’s job much harder.
This inflation challenge overshadows a modest upgrade to the UK’s 2025 growth forecast, which now stands at 1.3%. The country is expected to be the second fastest-growing economy in the G7 this year, but the high inflation rate remains the dominant feature of its economic outlook.
The global context is one of “unexpected resilience” in the short term, with world GDP growth for the year revised up to 3.2%. However, this is seen as a temporary reprieve before the delayed impact of US tariffs and other risks—such as a potential “correction” in “stretched” stock markets—begin to weigh on the economy.
The report also highlights how restrictive immigration policies, particularly in the US, could exacerbate inflation problems in certain sectors. For the UK, the primary message is clear: taming its G7-leading inflation must be the top priority, even in a complex and uncertain global environment.
