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The International Monetary Fund (IMF) has upgraded its forecast for UK economic growth this year, projecting a modest acceleration after the country's 2024 performance fell short of expectations. The IMF now anticipates the UK’s GDP will grow by 1.6% in 2025, a slight increase from its previous 1.5% prediction made last October.
This revised outlook offers a welcome boost for chancellor Rachel Reeves, who has faced a turbulent start to the year, with financial markets in London under pressure. Concerns over potential stagflation — where growth stagnates while inflation remains stubbornly high — led to rising borrowing costs and a drop in the value of the pound earlier this month.
However, recent easing in inflation, both in the UK and the US, has helped calm some of these fears.
Read more: Eurozone inflation remains at 2.4%
Despite the improved forecast for 2025, the IMF's latest data reveals that UK economic growth was weaker than expected last year. The global body revised its 2024 growth estimate down to 0.9%, from an earlier forecast of 1.1%.
This downgrade came ahead of the Office for National Statistics' report on Thursday, which showed UK GDP grew by a disappointing 0.1% in November, following a 0.1% decline in October and flat growth in the third quarter.
Looking ahead, the IMF expects the UK economy to pick up pace, forecasting growth of 1.6% in 2025 and 1.5% in 2026. The UK is now projected to outperform major European economies such as Germany, France, and Italy in the next two years.
The IMF expects the global economy to expand by 3.3% in both 2025 and 2026, with a slight 0.1 percentage point upgrade for 2025.
That would mean Britain would outpace Germany, whose predicted growth in 2025 has been cut to just 0.3% from 0.8%, as well as France (expected to grow by 0.8%) and Italy (0.7%).
The Fund has raised its forecast for US growth this year to 2.7%, up from 2.2%, while Canada’s forecast has been cut from 2.4% to 2%.
"Global growth is expected to remain stable, albeit lacklustre," the report said, noting that stronger growth in the US would be a key driver of this modest improvement.
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Inflation is also predicted to decline, reaching 4.2% this year and 3.5% in 2026, as central banks return to their inflation targets, helping to stabilise the global economy in the wake of recent disruptions, including the pandemic and the war in Ukraine.
Pierre-Olivier Gourinchas, the IMF’s Economic Counsellor, said: "Our projections incorporate recent market developments and the impact of heightened trade policy uncertainty, assumed to be temporary, but refrain from making assumptions about potential policy changes that are currently under public debate." This means a Trump 2.0 administration has not been taken into consideration.