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British inflation was the highest of any major economy in May at
8.7%, and financial markets have priced in increasingly high
peaks for BoE rates as wage and price data have come in hotter
than expected in recent months.
Markets see a roughly 50% chance that BoE rates will peak at
6.5% early next year, up from 5% now - a greater degree of
tightening than is expected for the U.S. Federal Reserve or the
European Central Bank.
"A continuous review of the pace and magnitude of monetary
tightening is warranted," IMF directors said after an annual
review of Britain's economy.
"Should inflationary pressures show signs of further
persistence, the policy rate may have to be raised further and
would need to remain higher for longer to durably lower
inflation and keep inflation expectations anchored."
BoE Governor Andrew Bailey on Monday vowed to "see the job
through" on returning inflation to its 2% target.
The IMF's latest comment is similar to language by staff in a
preliminary version of its annual report on the British economy
in May.
The agency also repeated the forecast it made in May that
Britain would avoid recession this year and that the economy
would grow by 0.4%.
Inflation will slow to "around 5.25%" by the end of the year, it
said. May's forecast said inflation at the end of 2023 would be
"around 5%". Both forecasts suggested inflation would be below
the BoE's 2% target by the middle of 2025.
The IMF's directors discouraged finance minister Jeremy Hunt
from spending any unexpected fiscal windfalls.
Instead, Britain should raise more money over the medium term
from carbon and property taxes, and by removing loopholes in
wealth and income taxation, in order to fund public services
better and stop government debt rising, they said.
(Reporting by David Milliken, Editing by Kylie MacLellan and
Devika Syamnath)
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