International Monetary Fund warns of inflation in UK

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International Monetary Fund warns of inflation in UK

In an otherwise upbeat assessment of the UK economy, the International Monetary Fund warned on Tuesday of premature celebration of sharp declines in the main rate of inflation.

This will continue and is the mechanical consequence of the massive rises in energy prices one year ago, now baked into the equation.

The biggest worry, however, is that inflation is embedded in the economy and will last for months to come, even as energy prices stabilize.

The persistence of inflation is a global phenomenon, not surprising after one shock that damaged the world's supply lines - the Covid pandemic - and another that hiked the cost of oil and gas - by Russia's Ukraine war, which is known as the stubbornness or stickiness of inflation.

In its history, double digit inflation has not tended to resolve itself in weeks or months, but has taken two to three years to resolve itself.

In the UK, inflation rates are higher than in France, Germany and the US. The UK has the highest core inflation in the G 7 and now has the highest food inflation in the world.

But some at the Bank of England have said that British producers now face less intensive competition from European firms.

A few months ago, everyone was saying we were going to be the lowest-growing economy in the G7, now we're definitely not going to be that, and possibly higher. But we don't know, we don't know, he said.

The hope and the assumption is that the UK is doing better economically than the statistics suggest, and so generating more inflation.