AMID Downing Street’s euphoria at the IMF’s latest health-check on the UK economy came the sobering reality-check that official figures still show Britain is in the tight grip of 1970s-style stagflation.

While price rises have eased from 10.1% in the year to March to 8.7% in April, the ONS numbers worryingly revealed core inflation – which strips out energy and food costs – has not fallen but risen from 6.2% to 6.8%, the highest rate in 31 years.

Which raises the UK Government’s biggest fear: inflation is becoming embedded in the economy.

In the short term at least this means, for some, the financial pain will continue; the cost of mortgages, rents and loans are set to go higher still as the Bank of England hikes base rates over summer.

To add to the despondency, investors dumped Government bonds, pushing borrowing costs up to their highest level since the aftermath of last autumn’s disastrous mini-budget.

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Bank Governor Andrew Bailey forecast inflation would fall to around 5.2% by the year’s end, meaning Rishi Sunak would achieve his pledge to halve inflation. But then he hedged his bets, adding: “We’re going to have to see how the news and the evidence unfold.” As ever.

Responding to the inflation numbers, Jeremy Hunt, with a deal of understatement, noted softly: “This battle is far from over. We’ve got a long way to go,” adding: “The job is not yet done.” Nowhere near Chancellor.

During his trip to the G7 summit in Japan last week, the PM was fizzing about the UK’s prospects. “Economic optimism is increasing, consumer confidence is increasing, growth estimates are being raised…So, there are lots of signs that things are moving in the right direction,” he purred.

As people, understandably, greeted this Panglossian outlook with a dollop of disbelief given headline inflation is more than four times the target, food prices remain at an eye-popping 19%, growth barely has a pulse and public sector strikes over pay erosion continue, Mr Hunt popped up to remonstrate with the gloomsters.

Denouncing an “insidious declinism,” he urged colleagues “not to talk ourselves down” because creating an “inaccurate narrative” could become a reality.

Then this week, like a ray of heavenly sunshine, the angels of the IMF appeared, singing the praises of the UK Government’s strategy.

The Washington-based watchdog flipped its UK forecast from a 0.3% contraction to a 0.4% expansion, lifting us from the bottom of the G7 league table above Germany.

Growth is expected to accelerate by 1% next year, as inflation slows, and then average around 2% in 2025; that is, after the General Election.

HeraldScotland: Prices are still rising - just not as fastPrices are still rising - just not as fast (Image: FREE)

IMF chief Kristalina Georgieva said the Sunak administration should be “congratulated” for taking “decisive and responsible steps” to rein in inflation and restore market confidence after the mindless chaos of Liz Truss’s mini-budget. (My description.) “This government has pursued not what is politically easy but what is right for the British people,” she declared. The air was punched several times in Downing Street.

The Chancellor welcomed the forecast as a “big upgrade” for the UK’s growth prospects, which “credits our action to restore stability and tame inflation”.

At PMQs, Mr Sunak couldn’t contain his glee. Teasing Sir Keir Starmer, whom he said had been very keen to quote the IMF’s predictions when they were gloomy, the PM told the Labour knight it was “now forecasting we will have stronger growth than Germany, France and Italy,” and “says we are prioritising what is right for the British people”.

But what the Tory hierarchy didn’t stress was Ms Georgieva’s warning about “premature celebration” on inflation and how growth would continue to be “subdued” for some time.

Tax cuts, she said, were not currently “affordable or desirable,” which will irk the Tory Right. Indeed, Mr Hunt has been adamant the best tax cut is to reduce inflation. But, politically, a “fiscal splurge” on taxes ahead of the General Election is almost a dead cert.

The astute former Treasury chief, Ken Clarke, gave his explanation as to why Britain suffered from higher inflation than our G7 counterparts, telling ITV’s Peston: “The reason we were worse than practically everybody else was that in addition to Covid, in addition to the Ukraine war, we had Brexit, which is continuing to do great damage to our economy.” Who would have thought it?

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Like faltering football teams, time never appears to be on the side of struggling governments.

The PM and his Chancellor are hoping that as inflation falls to below 5% and nearer the 2% target, voters will begin to experience something they haven’t felt for some considerable time: the feel-good factor. The fall in energy prices will help; so too would a reduction in people’s food bills.

But, with less than 18 months to the next General Election, Lord Clarke had a rather pessimistic message for his Conservative colleagues in Downing Street. “It's going to take some years to get back from this catastrophic series of events…to having a healthy economy with growth[and] low inflation.”

Not only that. Voters have long memories. Economic scars can take many years to heal.

Black Wednesday in September 1992, when Britain crashed out of the European Exchange Rate Mechanism, was a key reason for the downfall of the Major government and the “new dawn” for New Labour almost five years later even though the economy had begun to recover from the financial crisis.

The big worry for the Downing Street neighbours is that history will repeat itself.

That come the autumn of 2024 when most Westminster-watchers are expecting the next UK election to take place, things economically might he looking a whole lot brighter than they are now but the bad memories of the Johnson and Truss maladministrations combined with the painful scars from years of austerity and the cost-of-living crisis will mean Britain will succumb to Labour’s renewed message that it’s “time for change,” just as it did in 1997.

As things stand then, it feels like the General Election is Sir Keir’s to lose.