The UK economy is set to grow more than previously expected, according to the latest analysis from the International Monetary Fund (IMF), although rising global trade tensions could hold back momentum next year.
In its updated economic outlook, the Washington-based financial agency now predicts that the UK economy will grow by 1.2% in 2025, a marginal increase from its earlier forecast of 1.1% released in April.
However, this remains well below the 1.6% projection made in January, and the 1.5% figure from October, as economic uncertainty driven by US trade policy continues to weigh heavily on global markets.
The IMF pointed to ongoing disruption from the US tariffs introduced under former President Donald Trump, which have dented confidence and reduced trade flows.
Although some tariffs have been temporarily paused until 8 July, it remains unclear whether longer-term trade agreements will be reached in time.
According to the IMF, these trade frictions could reduce the UK’s GDP by 0.3 percentage points by 2026, primarily due to persistent policy uncertainty and a slowdown among the UK’s key trading partners. Nevertheless, the Fund held its medium-term growth projection of 1.4% for 2026.
“Our baseline assumes that global trade tensions will reduce UK output by 0.3% by 2026,” the IMF stated. “This reflects weaker global demand, ongoing uncertainty, and the direct impact of any remaining US tariffs.”
This warning comes despite Britain having previously secured a deal with the Trump administration to avoid 25% tariffs on UK cars and metals, easing pressure on key export sectors.
In its report, the IMF also noted that weak productivity remains a structural challenge for the UK, continuing to dampen the country’s long-term growth potential.
There was, however, cautious optimism regarding interest rates, with the IMF suggesting that borrowing costs “should” begin to fall, although it acknowledged the Bank of England faces a more complex task due to sticky inflation and fragile growth figures.
The IMF praised the government’s fiscal strategy, saying it “strikes a good balance between encouraging economic growth and maintaining fiscal responsibility”.
This was welcomed by Chancellor Rachel Reeves, who hailed the IMF’s update as a vindication of the government’s economic direction.
“The UK was the fastest-growing economy in the G7 in Q1, and today’s upgraded forecast from the IMF shows our plan is working,” Reeves said.
“We’re delivering for working families—with three new trade deals, a pay rise for millions via the national living wage, and real wages outpacing inflation by over £1,000 in the last year.”
