The International Monetary Fund (IMF) has issued a cautionary note, suggesting that the United Kingdom may experience five more years of elevated interest rates in a bid to curb escalating prices.

The IMF anticipates that the UK will encounter the highest inflation and the slowest growth among G7 economies in the upcoming year, surpassing countries like the United States, France, Germany, Canada, Italy, and Japan.

However, the UK Treasury has contested the IMF’s report, asserting that it did not consider recent revisions to UK growth.

The IMF’s economic outlook was formulated before the recent developments in Israel, emphasizing that economic forecasts are inherently imperfect due to the multitude of factors affecting growth.

The IMF, comprising 190 member countries, maintains that its growth predictions for the subsequent year in advanced economies have, more often than not, been within approximately 1.5 percentage points of actual outcomes.

In its latest forecast, released semi-annually, the IMF anticipates that the UK will outpace Germany in growth during 2023, keeping it from holding the lowest spot in terms of growth among G7 nations.

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However, it has lowered the UK’s growth prospects for the following year, predicting a meager 0.6% expansion, making it the slowest-growing developed country in 2024, a year typically associated with general elections.

The IMF attributes the UK’s subdued near-term prospects to the necessity of maintaining high interest rates to counter persistent inflation, which, although declining, remains above target.

The rationale behind raising interest rates is that it makes borrowing more expensive for individuals and businesses, encouraging reduced consumption and potential moderation of price increases.

However, this balancing act is challenging, as overly aggressive rate hikes could harm businesses and overall economic growth.

The IMF foresees that UK inflation will exceed that of any other G7 country in both the current and next year. It predicts that the Bank of England’s rates will peak at 6% and remain around 5% until 2028, compared to the current rate of 5.25%.

Chancellor Jeremy Hunt responded by highlighting the IMF’s upgraded growth projection for this year and underlined the need to address inflation while stimulating growth.

The ongoing conflict initiated by Hamas in Israel is expected to cast a shadow over the annual gathering of the IMF and the World Bank in Marrakech, Morocco.

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The IMF has already sounded the alarm regarding signs of a global economic slowdown, citing a deceleration in interest-rate-sensitive manufacturing sectors and a loss of momentum in China’s economy.

Global inflation has declined significantly from its peak in the second quarter of 2022 to 5.3% a year later. Global growth is projected to decrease from 3.5% in 2022 to 3% in 2023 and 2.9% in 2024.