The International Monetary Fund (IMF) warned UK interest rates will need to stay higher for longer to tame stubborn inflation.
In a report, the thinktank said although the UK is expected to avoid a recession this year, the country faces a “challenging economic outlook”. It forecast economic growth at a modest 0.4% this year and 1% in 2024.
It said bringing down inflation is a “prerequisite for lasting stability and growth”, adding authorities have rightly tightened monetary policy.
But it believes the country also faces structural challenges, notably weak potential growth, currently estimated at about 1.5%.
It reckons ambitious reforms are needed to bolster the UK’s productive potential.
The IMF pointed out that prior to the 2008 global financial crisis, the UK had been a strong performer among the G7 but this momentum was lost in the middle of the last decade.
Reviving private investment, labour supply and productivity are pivotal to lifting potential growth, it said.
The warning comes as mortgages rates hit 15-year highs following stronger-than-expected average earnings figures yesterday.