IMF raises UK growth forecast as it warns on tax and spending

The UK economy is set to experience slightly higher growth than previously anticipated in 2025, according to the latest forecast from the International Monetary Fund (IMF). The IMF predicts a growth rate of 1.2% for this year, with an increase to 1.4% in 2026. This positive outlook comes on the heels of a strong economic performance in the first quarter of the year.

Luc Eyraud, the IMF’s UK mission chief, highlighted the robust growth seen in the first three months of the year. However, he also pointed out that challenges lie ahead, including global trade tensions and volatile financial market conditions. The IMF emphasized the importance of the Chancellor sticking to her rules on tax and spending to ensure economic stability.

The IMF commended the government’s planning reforms and infrastructure investment plans, noting that these initiatives could further boost growth if implemented properly. However, the report cautioned that the Chancellor will face tough decisions in balancing taxation with spending in the long term.

One key recommendation from the IMF was to reduce the frequency of the Office for Budget Responsibility’s assessments of the UK’s finances from twice a year to once a year. Fiscal rules play a crucial role in maintaining credibility with financial markets, and the government has reiterated that its rules are non-negotiable.

Global trade tensions, including US tariffs and uncertainty among trading partners, are expected to weigh down growth in the coming years. The IMF predicts a 0.3% reduction in growth by 2026 due to these factors. Despite these challenges, the UK’s trade agreements with countries like the EU, India, and the US demonstrate the government’s commitment to supporting exporters and creating a more predictable environment.

On the inflation front, the IMF expects inflation to rise in the short term before returning to target levels later in 2026. Recent data showing unexpected inflation spikes have raised concerns, but the IMF believes that inflation will stabilize over time.

Overall, the IMF’s forecast paints a cautiously optimistic picture of the UK economy’s trajectory. While challenges remain, the government’s commitment to fiscal responsibility and strategic investments could help sustain growth in the years to come.