The United Kingdom is projected to be the second-fastest-growing economy among the G7 nations in 2025, according to the latest forecasts from the International Monetary Fund (IMF).
Despite global economic challenges including trade tensions and geopolitical uncertainties, the UK is expected to outperform most of its G7 peers, trailing only the United States.
However, the UK’s growth remains modest, with an anticipated rate of 1.3% for both 2025 and 2026.
On a per capita basis, economic output growth is even slower, at 0.4% in 2025 and 0.5% in 2026, placing the UK at the bottom of the G7 in this measure.
The IMF’s outlook also highlights that the UK will face the highest inflation rate among G7 countries in both 2025 and 2026, driven primarily by rising energy and utility costs.
Inflation is forecasted to be 3.4% in 2025 and 2.5% in 2026, although the IMF expects inflation to return to around 2% by the end of 2026.
Chancellor Rachel Reeves acknowledged the economic challenges, stating that many people feel the economy is "stuck" despite the growth projections.
She emphasized her commitment to addressing these issues and promoting the UK as a stable and attractive destination for investment during the IMF meetings in Washington DC.
The IMF’s global economic outlook also notes the impact of US tariffs imposed on imports, which have so far elicited a "muted response" but are beginning to affect global growth and consumer prices in the US.
The Fund’s chief economist, Pierre-Olivier Gourinchas, indicated that while the tariff shock has negatively influenced investment and consumption decisions worldwide, the overall impact has been less severe than initially feared due to scaled-down shocks and offsetting factors.
The IMF also cited Brexit as an example of how prolonged uncertainty around trade arrangements can lead to gradual declines in investment.
Other G7 economies are expected to experience slower growth, with Canada forecasted to be the second-fastest growing economy in 2026 at 1.5%, after a dip in 2025 due to trade tensions with the US.
Germany, France, and Italy are projected to grow at rates between 0.2% and 0.9% over the next two years.
The IMF also raised concerns about "excessively optimistic" expectations surrounding artificial intelligence (AI), warning that this could lead to a market correction.
The Fund’s Global Financial Stability Report highlighted that tech stock valuations are concentrated among a small number of companies at levels higher than during the 2020 dotcom bubble, although the AI investment boom is also supporting US economic growth.
In response to the inflation outlook, Bank of England Governor Andrew Bailey expressed optimism that inflationary pressures are easing, supported by recent UK data showing rising unemployment and slowing wage growth.
However, the IMF cautioned that the Bank of England should remain cautious about cutting interest rates due to persistent inflation expectations.
Shadow Chancellor Sir Mel Stride criticized the Labour government’s handling of the economy, citing rising living costs, increased debt, and low business confidence.
Overall, the IMF’s forecasts underscore a complex economic environment marked by moderate growth, inflation challenges, and ongoing global uncertainties.