The Inflation Outlier: Why the UK Faces the G7’s Worst Price Hikes

A new global economic report has singled out the United Kingdom as an inflation outlier, forecasting it will have the highest rate of price increases among all G7 nations in 2025 and 2026. The prediction of 3.4% inflation next year comes despite a minor upgrade to the country’s growth forecast, now at 1.3%.
The report’s chief economist detailed the reasons behind this pessimistic inflation outlook for the UK. He pointed to a combination of strong wage growth and, crucially, a shift in public psychology. “Households and firms in the UK are becoming maybe a bit less certain that inflation is coming down quickly,” he stated, highlighting the risk of inflation expectations becoming de-anchored.
This has led to a direct recommendation for the Bank of England to pursue a “very cautious” path on monetary policy, signaling that any talk of interest rate cuts is premature. While rising UK government bond yields were noted, they were attributed primarily to global factors rather than specific domestic risks.
This UK-specific challenge is set against a global backdrop of superficial resilience but underlying fragility. The world economy’s 2025 growth forecast was revised up to 3.2%, largely because the negative impact of US trade tariffs has been slower to materialize than expected. However, the long-term outlook is still considered “dim.”
The report also warns of other global headwinds that could affect the UK, including the economic drag from restrictive immigration policies and the potential for a “correction” in “stretched” stock markets. These factors add further complexity to the Bank of England’s task of taming the nation’s outlier inflation.