UK set for notable growth within the G7, IMF projections show
The International Monetary Fund (IMF) has updated its global outlook, placing the United Kingdom as the second-fastest growing economy among the world’s seven most advanced economies this year and next. Growth is forecast at 1.3% in both 2025 and 2026, a modest pace, yet it outstrips most peers in the G7, with the United States posting stronger expansion and several European partners expected to stagnate or edge higher at a glacial pace.
Inflation trajectory remains a concern, even as growth improves
While GDP expansion is muted, the IMF’s forecast highlights a contrasting trend: inflation is projected to rise to the highest levels within the G7 in 2025 and 2026. The IMF pegs UK inflation at around 3.4% in 2025 and 2.5% in 2026, before easing to the 2% target by late next year. The IMF stresses that this inflation spike is likely temporary, driven largely by higher energy and utility bills and the still-fragile post-pandemic price dynamics.
What is driving the divergent UK outlook?
The IMF attributes the UK’s relatively stronger growth to a combination of resilience in domestic demand, a better-than-expected start to 2025, and an improved trade outlook aided by a recently announced US-UK trade deal. External factors, including lingering global trade tensions and policy uncertainty in other regions, have historically weighed on the UK, but the latest projections suggest a brighter path ahead compared with some peers.
Comparisons within the G7
In the group of seven advanced economies, the UK’s 1.3% growth stands in contrast to projections for Germany, France and Italy, where growth is expected to be quite weak (0.2% to 0.9% in 2025 and 2026). Canada has seen downgrades in prior assessments, while the United States remains the standout, helped by its large and dynamic economy. The IMF’s overall upgrade to the UK outlook marks a notable shift from its April forecast, pointing to stronger activity in the first half of 2025 and more favorable trade conditions.
Political reactions and domestic considerations
Chancellor of the Exchequer Rachel Reeves welcomed the IMF’s improved outlook, describing it as a sign of progress while acknowledging that the benefits will not be felt equally by all households. “This is just the start,” she said, emphasizing the need to address broader concerns about living standards and growth. In contrast, opposition figures have warned that rising inflation and debt pressures leave families under financial strain, arguing that higher costs of living and business uncertainty need urgent policy responses.
Implications for households and policy
The IMF’s forecast underscores a delicate balance between modest growth and inflation pressure. For households, the path ahead may involve navigating higher energy bills and consumer prices, even as wage growth and job security remain important considerations. For policymakers, the challenge is to sustain momentum without letting inflation become entrenched. The IMF notes that structural and supply-side reforms—alongside targeted fiscal measures—could help bolster investment, productivity, and long-term growth, while keeping costs manageable for families.
Broader context: Brexit and global trade dynamics
The IMF also cites Brexit-related uncertainty as an enduring lesson: major shifts in trading arrangements can delay investment and slow growth, even as economies adjust over time. The UK’s trajectory in this forecast emphasizes that domestic policy choices and international trade arrangements will continue to shape its position within the global economy, particularly as tariff and currency dynamics evolve in a cautious global environment.
