The United Kingdom is projected to be the second-fastest-growing economy among the G7 nations in 2025, according to new forecasts from the International Monetary Fund (IMF).
The IMF predicts UK economic growth at 1.3% for both 2024 and 2025, outperforming all G7 countries except the United States in 2025.
This modest growth comes amid ongoing global trade tensions and geopolitical challenges.
However, the UK is expected to face the highest inflation rate in the G7 for both 2024 and 2025, driven primarily by rising energy and utility costs.
Inflation is forecasted to be 3.4% this year and 2.5% in 2026, with the IMF anticipating a return to the 2% target by the end of next year.
The G7 group includes the US, UK, France, Germany, Italy, Canada, and Japan, excluding rapidly growing economies like China and India.
The IMF's outlook indicates that the UK will surpass Canada in economic growth for 2025, although Canada is expected to reclaim second place in 2026 with a projected growth rate of 1.5%.
Other major European economies such as Germany, France, and Italy are forecasted to grow more slowly, with rates between 0.2% and 0.9% over the same period.
Chancellor Rachel Reeves welcomed the IMF's upgraded outlook but acknowledged that many people still feel the economy is "stuck," emphasizing the need to address these concerns.
Shadow Chancellor Sir Mel Stride criticized the inflation outlook, describing the IMF's assessment as "grim reading" and highlighting the squeeze on UK households.
He attributed rising living costs, increased debt, and declining business confidence to the current Labour government’s policies.
The IMF attributed the UK's slight upgrade in its World Economic Outlook to strong economic activity in the first half of 2025 and an improved trade outlook, partly due to the recently announced US-UK trade deal.
Globally, the IMF noted a "muted response" to the extensive tariffs imposed by the US on imports, a weakened US dollar, concerns over the Federal Reserve's independence, and high valuations in US technology stocks.
While some of these pressures are expected to ease, the IMF warned that resilience is giving way to warning signs, with tariffs increasingly contributing to higher goods prices in the US.
The IMF’s chief economist, Pierre-Olivier Gourinchas, stated that the worst effects of a global trade war have been mitigated but remain a negative factor for investment and consumption.
The IMF also raised concerns about a potential correction in the US AI technology sector, cautioning that overly optimistic growth expectations could be revised based on early adopter data.
The IMF’s Global Financial Stability Report highlighted complacency in markets and noted that the overvaluation of tech stocks is concentrated in a small number of companies at levels surpassing those seen during the 2020 dotcom bubble.
Despite these risks, the AI investment boom continues to support US economic growth.
These forecasts were released ahead of the annual IMF and World Bank meetings in Washington DC, where global financial stability and economic policies remain key topics.