IMF upgrades UK economic growth as tariffs threat recedes

The International Monetary Fund has given a boost to the United Kingdom’s economic outlook, upgrading growth forecasts for both 2025 and 2026. Despite lingering concerns over global trade tensions, the IMF revised Britain’s GDP growth estimate for 2025 from 1.1 per cent to 1.2 per cent, with the projection for 2026 remaining steady at 1.4 per cent. These improvements position the UK as the third-fastest growing economy in the G7 pack for the coming two years, trailing behind the United States and Canada while faring considerably better than Germany, which faces stagnation.

This vote of confidence comes as the global economy absorbs the shock of President Trump’s sweeping tariffs, announced earlier this year. The IMF highlighted that the adverse effects many had expected have not yet impacted growth as severely as feared. Notably, the average US tariff rate on its trading partners has fallen from around 24 per cent to 17 per cent after key reductions for the UK, China and the European Union ahead of looming deadlines. The stability in global growth, according to IMF chief economist PierreOlivier Gourinchas, results from this easing of trade barriers, combined with the effects of lower interest rates and a weaker dollar.

The world economic outlook has also been revised, with global growth predicted to reach 3 per cent in 2025, up by 0.2 percentage points on earlier forecasts. This resilience, though welcome, remains fragile. The IMF cautioned that much of the economic pain from the current wave of protectionism may only become apparent in the years ahead. Many countries, particularly in Europe and Asia, have rushed to import goods before tariffs are imposed, and the dollar’s 8 per cent depreciation has spurred activity. Nevertheless, the IMF projects a persistent decline in global trade relative to output, falling from 57 per cent in 2024 to 53 per cent by 2030.

The UK stands to benefit disproportionately from the environment of falling interest rates, the IMF noted, strengthening investment prospects despite the ongoing uncertainty. Chancellor Rachel Reeves pointed to the upgraded forecast as evidence of Britain’s resilience and highlighted continued investment through the government’s Plan for Change to unlock further economic potential.

Critical warnings remain in place from the IMF to the UK government. Recommendations include shifting to a single annual fiscal event, reviewing the triple lock on pensions and exploring higher NHS charges for top earners as potential measures to ensure fiscal discipline.

With global markets adapting to a complex mix of tariffs, currency swings and policy interventions, the UK’s economic narrative looks set to stay in the spotlight. The coming months will determine whether Britain’s growth can be sustained as international pressures evolve.