Overview: UK poised for solid relative growth, IMF says
The United Kingdom is forecast to be the second-fastest growing major economy among the G7 this year and next, according to the latest World Economic Outlook from the International Monetary Fund (IMF). The projection places the UK ahead of most peers in a year shaped by global trade tensions and geopolitical uncertainty, with growth pegged at a modest 1.3% for both 2025 and 2026. Only the United States is expected to outpace it within the group of advanced economies.
Growth drivers and contrasts within the G7
The IMF notes that a stronger-than-expected first half of 2025, coupled with an improved trade outlook and a recent US-UK trade deal, underpins the upgraded UK outlook. The forecast underscores relatively resilient activity in the UK, even as Germany, France, Italy and Canada grapple with slower expansion. The projection framework emphasizes external strength—trade and investment expectations—as a key support for UK growth in the near term.
What the numbers mean
While the headline growth rate remains modest, being the second-fastest in the G7 signals a meaningful relative improvement for the UK economy compared with several peers. The IMF’s upgrade also respects a backdrop of policy adjustments and energy-market dynamics that have shaped the domestic environment in recent years. The forecast, however, comes with caveats about inflation and the path for household balance sheets.
Inflation outlook: a temporary lift in the G7
The IMF projects UK inflation rising to the top of the G7 in 2025 and 2026, driven by higher energy and utility bills. The forecast pins inflation at about 3.4% in 2025 and 2.5% in 2026, before easing toward 2% by the end of 2027. IMF economists describe this elevated inflation as temporary, reflecting energy-price dynamics and supply-side pressures that analysts expect to unwind over the forecast horizon.
Policy reactions and political responses
Chancellor of the Exchequer Rachel Reeves welcomed the IMF upgrade, stressing that it must be “the start” of broader economic improvement for working households. She emphasized the need for long-term action to address persistent cost-of-living pressures and low business confidence. In contrast, opposition voices argued that inflation forecasts reflect ongoing challenges for households—a sentiment echoed by critics who warned that living costs have risen under current policies.
The bigger picture: global economy and Brexit-linked uncertainties
The IMF’s outlook highlights a fragile global economy, where tariff measures, exchange-rate movements and policy shifts can influence growth. The report cites Brexit-related uncertainty as a factor that can dampen investment in the medium term, even as UK external ties and regulatory changes create new opportunities for trade partnerships, including the UK-US deal cited in the IMF’s analysis.
Implications for households and businesses
For families and firms, the near-term signal is mixed. Modest growth supports a more stable macro backdrop, while elevated inflation in 2025–26 suggests continued pressure on real incomes and cost bases. Policymakers face a balancing act: sustaining demand to support growth while curbing price pressures that erode household purchasing power. The IMF’s call for resilience also underlines the importance of structural reforms, productivity initiatives and targeted support for sectors most exposed to energy and utility costs.
Bottom line
In an environment of global volatility, the IMF’s UK forecast as the second-fastest growing G7 economy reinforces a narrative of relative resilience. Yet inflation dynamics warn that the road ahead will require prudent policy choices and steady investments in competitiveness to translate delicate growth into durable gains for ordinary households.
