The IMF said in its report: “History teaches us that inflation is persistent.”
In the 1970s, only 60pc of nations successfully managed to get inflation under control within five years. Those which succeeded did so by keeping interest rates high for an average of more than three years.
The Bank of England began raising rates only two years ago, suggesting borrowing costs need to stay elevated for at least another year to ensure inflation is truly conquered.
As well as urging central banks to keep interest rates higher for longer, the IMF warned governments against major spending sprees or tax cuts.
The IMF said: “Central bankers are on the front line of the fight against inflation and should pay the most attention to these lessons. But governments must not make the task of monetary authorities harder by adding to price pressures with loose fiscal policy.”
Jeremy Hunt last week announced what he called “the biggest business tax cut in modern British history”. The Chancellor has argued that the move to make an investment tax break permanent will boost growth without pushing up prices.
Despite the Chancellor’s efforts to boost investment, a survey of company bosses by the Bank of England found they expect investment to fall by around 10pc in the final quarter of the year because of high interest rates.
Businesses also expect inflation will be stuck above 3pc in three years’ time, adding to pressure on the Bank of England to keep rates high.
Meanwhile, the IMF cautioned that hopes of major growth in renewable energy and electric cars could be derailed by fragmentation in the global economy.
Analysts warned that critical minerals such as lithium and cobalt may stop flowing around the world if a separate Russia- and China-led economic bloc emerges that is cut off from the West.
The IMF said: “Critical minerals may someday be as important to the world economy as oil is today.
“Fragmentation in critical mineral markets could make the clean energy transition more costly and potentially delay much-needed policies to mitigate climate change.”
Under a scenario where the world splinters, IMF fears that investment in renewable energy could fall by one-quarter in 2030 compared to current forecasts, while the output of electric vehicles could be one-third lower than predicted.
Robert Johnson is a UK-based business writer specializing in finance and entrepreneurship. With an eye for market trends and a keen interest in the corporate world, he offers readers valuable insights into business developments.
