The International Monetary Fund (IMF) has delivered a mixed report card for the UK economy, upgrading this year’s growth forecast while simultaneously issuing a stark warning about future inflation. The UK’s GDP growth projection for the current year has been edged up to 1.3%, positioning it as the second-fastest-growing economy in the G7, trailing only the United States.
Chancellor Rachel Reeves welcomed the news, stating, “This is the second consecutive upgrade to this year’s growth forecast from the IMF,” and highlighting that Britain led the G7 in growth during the first half of the year. The report projects the UK will achieve 2% GDP growth over the year as a whole.
However, this positive growth narrative is shadowed by significant concerns about rising prices. The IMF anticipates UK inflation will climb to an average of 3.4% in 2025, the highest among G7 nations. This figure is an increase from its previous prediction of 3.2%, signaling persistent inflationary pressures.
The fund’s chief economist, Pierre-Olivier Gourinchas, pointed to strong wage growth and elevated inflation expectations among households and firms as key drivers. He suggested a growing uncertainty in the UK about how quickly inflation will be brought under control, prompting advice for the Bank of England to proceed with caution on any potential interest rate cuts.
While global factors are seen as a major influence on the UK’s borrowing costs, the domestic inflation challenge remains a central point of concern for the IMF. The report underscores the delicate balancing act facing UK policymakers: nurturing growth while taming the most stubborn inflation rate in the developed world.