Markets Are Divided After IMF Suggests UK Interest Rates Keep High!

<p>&nbsp;The Bank of England may have to keep interest rates high for an extended period if inflationary pressures persist, and it was justified to raise them by half a percentage point last month, the director of the International Monetary Fund (IMF) said on Tuesday.</p><p><br /></p><p>UK inflation was the highest of any major economy in May at 8.7%, and financial markets have priced in a higher peak for BoE rates as wage and price data have come in higher than expected in recent months.</p><p><br /></p><p>Markets see about a 50% chance that BoE rates will peak at 6.5% as early as next year, up from 5% now. This indicates a higher-than-expected level of tightening for the U.S. Federal Reserve. or the European Central Bank.</p><p><br /></p><p>"Continued review of the pace and magnitude of monetary tightening is warranted," the IMF director said after Britain's annual economic review.</p><p><br /></p><p>"If inflationary pressures show signs of persisting, policy rates may need to be raised further and need to remain higher for a longer period of time in order to bring down inflation durably and keep inflation expectations lower."</p><p><br /></p><p><br /></p><p>BoE Governor Andrew Bailey on Monday pledged to "see the objective for the employment sector is achievable" to return inflation to the 2% target.</p><p><br /></p><p>The IMF's latest comments are in line with what it said in an earlier version of its annual report on the British economy in May. The agency also repeated forecasts made in May that Britain would avoid recession this year and that the economy would grow by 0.4%.</p><p><br /></p><p>Inflation will slow to "around 5.25%" by the end of the year, he said. May's forecast said inflation at the end of 2023 would be "around 5%". Both forecasts suggest inflation will be below the BoE's 2% target by mid-2025.</p><p><br /></p><p>The IMF directors also said that they are discouraging finance minister Jeremy Hunt from spending any unexpected fiscal gains.</p><p><br /></p><p>Instead, Britain should raise more money in the medium term from carbon and property taxes, and by removing loopholes in wealth and income taxes, to better fund public services and stop rising government debt, they say.</p>