UK faces worst living standards growth, highest inflation growth in West, says IMF

In a double blow to British Prime Minister Sir Keir Starmer’s standing, the International Monetary Fund (IMF) has warned that the United Kingdom will see the worst living standards growth but highest growth in inflation in the West next year.

In the World Economic Outlook on Tuesday, the IMF said that GDP growth per person would be just 0.5 per cent in 2026 — compared with 1.8 per cent in the United States and 1.2 per cent in Japan. The GDP growth per person is seen as a proxy for living standards.

In another blow, the IMF said the UK’s inflation will grow at 3.4 per cent in 2025, an upward revision from 3.2 per cent, and will grow at 2.5 per cent in 2026, above the previous estimate of 2.3 per cent.

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This would mean that the UK will have the highest inflation this year and the next year among all the developed economies of the Group of Seven (G-7).

Cooling job market further worsens UK’s prospects

The cooling job market further complicates the situation for the Bank of England (BoE) that is in charge of British monetary policy.

In the three months ending in August, annual wage growth minus bonuses was 4.7 per cent, down from 4.8 per cent in the May-July quarter, according to the Office for National Statistics (ONS).

Such a situation means that the BoE is stuck between a rock and a hard place, said Russ Mould, an investment director at AJ Bell, according to Yahoo Finance.

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Mould said, “Central banks raise rates when they’re trying to combat high inflation, and they cut them when inflation looks like it is under control. An inflation figure starting with ‘3’ is arguably outside of the Bank of England’s comfort zone, so it might be forced to keep interest rates steady. Normally that wouldn’t be such a problem if it wasn’t for a fragile jobs market.

“Central banks look at both inflation and labour when making interest rate decisions, and a weak jobs market might traditionally call for rate cuts. It suggests the Bank of England is stuck between a rock and a hard place.”