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The UK is set to be the second-fastest-growing of the world’s most advanced economies this year, according to new projections from the International Monetary Fund (IMF).
But the IMF also predicts the UK will face the highest rate of inflation in the G7 both this year and next, driven by rising energy and utility bills.
Prices are forecast to rise by 3.4% this year and 2.5% in 2026, but the IMF says higher inflation is likely to be temporary, and should fall to 2% by the end of next year.
UK economic growth rates remain modest at 1.3% for this year and next, but that outperforms the other G7 economies apart from the US in 2025, in a torrid year of trade and geopolitical tensions.
The G7 are seven advanced economies – the US, UK, France, Germany, Italy, Canada and Japan – but the group does not include fast-growing economies such as China and India.
The IMF is an international organisation with 190 member countries. They work together to maintain global economic stability.
In the IMF’s forecast for economic growth, it predicts the UK will push Canada out of second place, after its trade-war-affected economy was hit by the biggest downgrades for 2025 and 2026. However, Canada is expected to retake second place next year when its economy is forecast to grow at a rate of 1.5%.
Germany, France and Italy are all forecast to grow far more slowly at rates of between 0.2 and 0.9% in 2025 and 2026.
Chancellor Rachel Reeves welcomed the fresh upgrade to the IMF’s outlook for the UK’s economy.
“But know this is just the start. For too many people, our economy feels stuck,” she said.
“Working people feel it every day, experts talk about it, and I am going to deal with it.”
But highlighting the inflation forecasts, shadow chancellor Sir Mel Stride said the IMF assessment made for “grim reading”.
He said that UK households were “being squeezed from all sides”, adding: “Since taking office, Labour have allowed the cost of living to rise, debt to balloon and business confidence to collapse to record lows.”
The IMF said a slight overall upgrade for the UK in its World Economic Outlook, from its previous outlook in April, was due to “strong activity in the first half of 2025” and an improved trade outlook, partly thanks to the recently announced US-UK trade deal.
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Source: BBC News
