The International Monetary Fund (IMF) has upgraded its forecast for the UK economy this year to 1.2%, reversing a downgrade in April. The organisation also suggested that Chancellor Rachel Reeves should refine her fiscal rules to prevent the need for emergency spending cuts.
In its annual review of the UK economy, the IMF said that the current system of twice-yearly assessments of the public finances by the Office for Budget Responsibility (OBR) is ripe for an overhaul. Limiting the OBR’s assessment to once a year, at the time of the autumn budget, could promote further policy stability, according to the IMF.
The organisation warned that trade tensions linked to US tariff plans will reduce UK economic growth next year, but still predicts the economy will expand by 1.4% in 2026. It also praised Reeves for taking a tough line on government day-to-day spending and directing spare funds to public investment.
Reeves said: “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. 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 3 million workers through the national living wage, and wages beating inflation by £1,000 over the past year.”
The IMF’s recommendations also included introducing a process to avoid small fiscal rule breaches requiring corrective measures outside of the autumn budget. However, it warned that extra tax rises or spending cuts could still be necessary “if shocks arise”, adding that failure to keep spending within the rules risked a backlash from markets.
Source: https://www.theguardian.com/business/2025/may/27/rachel-reeves-should-ease-fiscal-rules-to-prevent-emergency-spending-cuts-imf-says