Britain’s economic growth forecast for 2025 received the sharpest downgrade of any major European economy from the International Monetary Fund on Tuesday as the UK braces for the global fallout from U.S. President Donald Trump’s trade tariffs.
The Fund also said British inflation would be higher this year than it had thought in January, and higher than in any other Group of Seven country – showing the economic risks facing finance minister Rachel Reeves and Bank of England Governor Andrew Bailey, who will attend IMF spring meetings this week.
Britain remains on course to grow more strongly than France, Italy or Germany in 2025, the IMF said.
But the pace of the increase was revised down to 1.1% from January’s projection of 1.6% – more sharply than for any of the others.
As well as the impact of Trump’s tariffs and the steep increase in borrowing costs in financial markets in recent weeks, the IMF linked the downgrade to weak momentum in the economy at the end of 2024 and the hit to demand from inflation.
The IMF trimmed its forecast for UK growth in 2026 to 1.4% from a previous 1.5%.
IMF chief economist Pierre-Olivier Gourinchas told reporters that the Fund expected three more interest rate cuts by the BoE this year after a quarter-point cut in February.
The higher U.S. import tariffs were likely to reduce pressure on inflation in Britain, as in most economies, Gourinchas said. BoE rate-setter Megan Greene had earlier said she expected the diversion of exports away from the U.S. would push down inflation in Britain.
Despite the weaker outlook, the Fund bumped up its forecast for British inflation this year by 0.7 percentage points from its January forecast, to 3.1%.
On average, the IMF’s inflation forecast for advanced economies rose 0.4 percentage points, while that for the United States, where Trump’s tariffs will hit prices directly, jumped 1.0 points.
The IMF said the increase in its forecast for UK inflation “primarily reflects one-off regulated price changes”.
Energy and water bills for households in Britain rose this month, alongside a hike in social security contributions paid by employers and a nearly 7% rise in the minimum wage, which could also increase inflation pressure.
The IMF said it expected British inflation to slow to 2.2% in 2026, close to the BoE’s 2% target.
In her response, Reeves highlighted how the IMF still saw stronger economic growth in the UK in 2025 than in Europe’s other big countries.
“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,” Reeves said in a statement.
She is due to meet U.S. Treasury Secretary Scott Bessent to push Britain’s case for a trade agreement with Washington that could lower or eliminate the tariffs imposed by Trump on UK exports.
The IMF’s new forecast of 1.1% growth in Britain’s economy this year is stronger than the 1.0% expansion seen by the government’s budget watchdog and the BoE’s forecast of 0.75%.
(Writing by William Schomberg）
