The International Monetary Fund (IMF) has upgraded its forecast for the UK economy, predicting it will grow 1.2% this year before gaining momentum next year. However, the organisation warns that trade tensions linked to US tariffs will reduce UK economic growth next year.
The upgrade in forecasts is slight, up from an expected 1.1% announced in April as the world reeled from the global trade war sparked by US President Donald Trump’s tariffs. The IMF expects the UK economy to grow less this year than it forecast in October and January.
Tariffs imposed on goods imported to the United States are a major concern, with the effect estimated at 0.3 percentage points lower growth by 2026. The organisation held its prediction that the UK economy will grow by 1.4% in 2026, despite the tariffs warning.
The IMF also cautioned that “weak productivity continues to weigh on medium-term growth prospects”. Lower productivity has been an issue since the global financial crash of 2008-2009 and is caused by factors such as chronic under-investment, low private sector research and development, limited access to finance for businesses to expand, skill gaps, and deteriorating health outcomes.
In contrast, interest rates are expected to continue coming down, making borrowing cheaper. The IMF recommends the Bank of England cut interest rates by 0.25 percentage points every three months until they reach a level of around 3%, down from the current 4.25%.
The UK government’s fiscal plans have been praised by the IMF for striking a good balance between supporting growth and safeguarding fiscal sustainability. Chancellor Rachel Reeves welcomed the upgrade, saying the UK was the fastest growing economy in the G7 for the first three months of this year and that her government’s plan for change is delivering results for working people.
Source: https://news.sky.com/story/imf-upgrades-uk-economic-growth-forecast-but-issues-tariffs-warning-13375339