The International Monetary Fund (IMF) this week was forced to revise its economic growth projections for the United Kingdom downwards. It has cut its 2025 forecast from 1.6% to 1.1%. Indeed, in its most recent World Economic Outlook report, the IMF estimates global growth this year at a miserable 1.2%. It further predicts a slow rise to 1.4% by 2026. These changes are a result of the confluence of escalating global trade tensions and a slowdown in economic activity among the UK’s major trading partners.
According to the IMF, the impact of US tariffs, particularly those imposed by former President Donald Trump, continues to exert pressure on the British economy. Given the report’s warning about “persistent uncertainty” in global markets, one can only fret that this may further stifle growth potential in the years to come.
In particular, Luc Eyraud, the IMF’s mission chief for the UK, pointed out that growth was extremely high in these first three months of this year. Nonetheless, he warned that the outlook remains uncertain. Lastly, he urged the UK government to tread lightly when addressing these challenges.
This new analysis makes clear that external pressures can’t be overstated when it comes to assessing growth. Next year will be down – 0.3% below prior forecasts. Our global economy is experiencing growing turbulence. Chancellor Rachel Reeves will face some “hard decisions” as she seeks to balance the levels of taxation and spending to restore economic stability.
In April, the UK’s Office for National Statistics published a surprise jump in annual inflation to 3.5%. The IMF forecasts that UK inflation will be back down to 2.2% by 2026. They project it will get back to their 2 percent target later that same year. This expected drop could bring some welcome relief to both consumers and businesses.
Eyraud was hopeful that there are opportunities for the UK to create a more conducive trading environment.
“Establishing a more predictable environment for UK exporters is essential,” – Luc Eyraud, IMF.
Chancellor Reeves has underscored the government’s commitment to stimulate economic growth through measures aimed at “protecting jobs, boosting investment and cutting prices.” She agreed that government should do its best to be on the forefront of an effort to do so in an increasingly uncertain economic environment.