Inflation in the UK was 3% in the year to February, which is higher than the Bank of England’s target. Some analysts believe the Bank could raise interest rates later this year.
However, in its outlook, the IMF cautioned central banks against raising interest rates too prematurely.
“Reacting strongly to flexible commodity prices, when supply constraints are present only in the related sectors, brings down inflation fast but risks a recession later,” it said.
The IMF has put in a significant level of caution on its forecast given the uncertainty of events in the Gulf. Its numbers rely on a relatively fast resolution to the conflict by the second half of the year.
The Fund pointed out that before the war it had expected to upgrade economic prospects, as US President Donald Trump’s trade tariffs were now lower than planned, and China, Europe and Canada had simply traded more with each other to make up for US declines.
But now, the IMF said “the global economy is threatened with being thrown off course”.
The economies of many Gulf nations such as Iran, Iraq, Qatar and Bahrain are expected to contract this year.
In more severe scenarios, with the oil price averaging $110 a barrel and $125 next year, and energy prices and interest rates continuing to rise, a global recession would be a “close call”.
