IMF slashes UK growth forecast as tariffs create ‘significant slowdown’
The IMF has downgraded its UK growth forecast by 0.5 per cent this year as President Donald Trump’s trade war brings global tariff rates to “centennial highs”.
The IMF said the UK economy would grow by 1.1 per cent growth this year, reflecting leading forecasters’ worries about the ongoing global trade war between US and China.
Chancellor Rachel Reeves saw a silver lining as the IMF took a more aggressive view on its growth outlook for France and Germany.
“This forecast shows that the UK is still the fastest growing European G7 country,” Reeves said.
“The IMF has 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 last forecast, which came in January, predicted the UK economy to grow 1.6 per cent in 2025 and 1.5 per cent in 2026. The IMF now predicts the UK economy to grow 1.4 per cent next year.
UK growth in 2028 and 2029 is now forecast to be 0.1 per cent higher than it previously predicted.
The IMF also said that UK inflation will be higher than it previously forecast as price growth could reach 3.1 per cent this year.
The UK suffered a bigger hike to its inflation forecast than European countries due to the IMF’s evaluations of Reeves’ tax hikes and higher energy prices.
Shadow Chancellor Mel Stride said the downgrade was an “indictment” of Labour’s fiscal policies.
“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,” he said.
“Labour is taking Britain backwards with reckless spending, higher inflation and no credible plan for growth.”
Global growth is set to slow down by a similar rate to the UK as the IMF projected an expansion of 2.8 per cent this year, down from 3.3 per cent in 2024.
The US also faces a 40 per cent risk of a recession, the IMF’s forecasters also said.
The IMF‘s chief economist, Pierre-Olivier Gourinchas, said that the global trade war had “severely tested” the global economy.
“While many of the scheduled tariff increases are on hold for now, the combination of measures and countermeasures has hiked US and global tariff rates to centennial highs,” he said.
“For this reason, we expect that the sharp increase on April 2 in both tariffs and uncertainty will lead to a significant slowdown in global growth in the near term.”
“If countries de-escalate from their current tariff stance, and co-ordinate to deliver clarity and stability on trade policy, the outlook could immediately brighten,” he added.
The Bank of England is expected to release its own updated forecast for the UK economy at its next rate decision in early May.
Its last forecast said inflation would hit 3.75 per cent and growth would come in at 0.75 per cent this year.