Britain's economic growth will be worse than previously expected while inflation is heading higher, according to the IMF
Rachel Reeves will push for free trade and an end to Donald Trump’s tariffs war as she visits Washington this week in the wake of an economic warning from the International Monetary Fund (IMF).
Britain’s GDP will grow by 1.1 per cent in 2025, according to the fund – down from a rate of 1.6 per cent forecast in January. Next year’s growth will also be lower than previously expected.
The news has come as a blow to the Chancellor as she pushes to grow the economy and boost living standards amid economic turbulence around the world.
She is spending this week in the US capital for an IMF summit where she will argue for countries to stay open to trade and push her American counterpart for an economic partnership deal.
Reeves is set to argue that avoiding a full-blown trade war will help protect British businesses and make voters better off, The i Paper understands.
In the latest edition of its world economic outlook published on Tuesday, the IMF said that Trump’s tariffs “will lead to a significant slowdown in global growth in the near term”.
It warned that thanks to the extreme uncertainty about US economic policy, it is becoming harder to forecast GDP growth and other key metrics such as inflation and unemployment.
This year and next, the IMF predicted Britain’s economy would grow more slowly than it was thought in January when the last set of forecasts were published.
The fund said: “For the United Kingdom, the growth projection for 2025 is 1.1 per cent, lower by 0.5 percentage points compared to the forecast in January.
“This reflects a smaller carryover from 2024, the impact of recent tariff announcements, an increase in gilt yields, and weaker private consumption amid higher inflation as a result of regulated prices and energy costs.”
UK inflation will stand at 3.1 per cent over the course of this year, up from the 2.4 per cent previously expected. This is primarily due to the increase in the cost of energy and other bills whose price is set by the Government and regulators.
IMF chief economist Pierre-Olivier Gourinchas said that “domestic factors” were the biggest reason for the UK’s economic downgrade, but added that the damage from tariffs was likely to linger for years to come.
He said: “We are seeing a negative impact in the short term, in the medium term, in the long term.” Gourinchas said he expected UK interest rates to be cut three more times this year as the Bank of England seeks to stimulate growth.
The IMF said that from 2028 onwards, GDP growth will be slightly higher than previously thought – reaching at least 1.4 per cent each year. The Chancellor said in response to the figures: “This forecast shows that the UK is still the fastest growing European G7 country. The IMF have recognised that this Government is delivering reform which will drive up long-term growth in the UK, through our plan for change.
“The report also clearly shows that the world has changed, which is why I will be in Washington this week defending British interests and making the case for free and fair trade.”
The IMF’s prediction follows similar downgrades from the Office for Budget Responsibility and the Bank of England. The Government has made growing the economy a key aim of this parliament, and hopes that will help avoid further cuts or tax rises.
Mel Stride, the Conservatives’ shadow Chancellor, said in response: “The latest IMF outlook is a worrying indictment of Labour’s economic approach. Less than a year into their government, Britain is already seeing the consequences of Labour’s high-tax, high-spend agenda.”
He added: “At a time when families are looking for stability and support, Labour’s policies are stifling growth, pushing up the cost of living and leaving us vulnerable to external shocks.”
Reeves is meeting with finance ministers from other countries this week at a gathering of the IMF, which is expected to focus on ways to minimise the impact of Trump’s trade wars.
The world economic outlook called on governments to keep borrowing low in order to ensure that they are resilient in the face of market chaos.
Any fiscal support for those affected by the tariffs should be time-limited and “narrowly targeted”, in contrast to interventions such as the subsidy on energy bills which the UK Government introduced in the aftermath of Russia’s invasion of Ukraine.
