Market News

BY Elliot Gulliver-Needham

The International Monetary Fund has upgraded its forecast for UK economic growth this year, despite warning that turmoil around US tariffs will stymie performance.

The global body upgraded GDP growth predictions for the UK in 2025 to 1.2 per cent, up from the 1.1 per cent it had forecast last month.

However, economists at the IMF warned that tensions around trade are set to wipe 0.3 percentage points off Britain’s growth in 2025.

Turmoil around the rollout of US President Donald Trump’s tariffs will lead to “persistent uncertainty, slower activity in UK trading partners, and the direct impact of remaining US tariffs on the UK,” said the body.

In addition, it warned that trade uncertainty could hit supply chains and cause a reduction in private investment, increasing risk that growth could be weaker than expected.

The UK economy grew 0.7 per cent in the first three months of the year, above expectations, thanks to large rises in aircraft and machinery equipment, all of which are areas that Trump has targeted with tariffs.

Growth and the UK government

After slashing interest rates to 4.25 per cent earlier this month, the Bank of England predicted that the UK economy would grow by one per cent this year and 1.25 per cent in 2026.

The IMF said the Bank should “continue to ease monetary policy gradually,” as further rate cuts are widely expected later in the year.

As part of the report, the IMF warned that Chancellor Rachel Reeves should refine her fiscal rules to prevent any need for emergency spending cuts, warning against short-term savings.

“There is still significant pressure for frequent fiscal policy changes, given that small revisions to the economic outlook can erode the headroom within the rules, which is the subject of intense market and media scrutiny,” said the economists.

It suggested establishing “a formal process so that small rule breaches do not trigger corrective fiscal action outside of the single fiscal event”.

Meanwhile, economists at the global financial body stated that the UK government’s attempts to overhaul planning rules and cut red tape could lead to future growth in the economy.

“The authorities’ structural reforms, including to planning, and the increase in infrastructure investment could increase potential growth if properly implemented,” said the IMF.

Reeves has made delivering growth “further and faster” a central mission, targeting reforms across planning, pension investments, and energy.

“The UK was the fastest growing economy in the G7 for the first three months of this year and today the IMF has upgraded our growth forecast,” said Chancellor Rachel Reeves.

“We’re getting results for working people through our plan for change – with three new trade deals protecting jobs, boosting investment and cutting prices, a pay rise for three million workers through the national living wage, and wages beating inflation by £1,000 over the past year.”