The International Monetary Fund improved its forecast for the UK economic growth this year but still expressed concern about the government’s financial situation and global economic uncertainty.
The International Monetary Fund predicts UK economic growth to reach 1.2% in 2025 based on its annual assessment which shows higher growth than the previous 1.1% estimate. The projection indicates that UK growth will expand to 1.4% during 2026 due to positive beginning-of-year developments.
Luc Eyraud from the IMF declared economic recovery has started because the first quarter demonstrated strong consumer spending and business investment recovery. Volatile financial markets together with rising global trade tensions create challenges for the upcoming period according to him.
The improved forecast results from positive GDP data published by the UK earlier this month. These statistics existed before both the new U.S. import tariffs and the increased UK employer taxes took effect in April.
The IMF commended the government for its planning reforms and infrastructure investments because these initiatives can strengthen growth when executed correctly. The IMF advised Chancellor Rachel Reeves to keep her non-negotiable fiscal rules intact despite all budgetary pressures.
The current fiscal framework includes two fundamental rules: the government needs to fund operational expenses through taxes instead of borrowing and must lower its debt-to-GDP ratio by the end of the parliamentary term in 2029–30.
The IMF recommended a modification to these rules by having the Office for Budget Responsibility conduct annual assessments of the UK fiscal position instead of biannual evaluations. The proposal from the Fund would offer increased adaptability without compromising market confidence according to their analysis.
The IMF delivered an unambiguous warning to Britain which faces challenges from inflation and geopolitical conflicts and declining international demand that the current economic recovery needs fiscal stability to maintain. The path ahead for Chancellor Reeves requires maintaining a balance between pursuing growth goals while upholding budget control.
