The International Monetary Fund (IMF) has upgraded its global growth forecast for this year, citing “unexpected resilience” in the face of tariffs imposed by US President Donald Trump. However, it warned that the full impact of trade barriers is yet to be felt and the outlook remains “dim”. The IMF now expects global GDP to grow by 3.2% in 2025, up from 3% in its July forecast, with next year’s forecast unchanged at 3.1%.
The UK’s growth forecast for this year has been modestly increased from 1.2% to 1.3%, though next year’s forecast was slightly downgraded to 1.3%. The IMF expects the UK to be the second fastest-growing economy in the G7 this year, behind the US, with GDP growth of 2%. However, it warned that UK inflation is likely to be the highest in the G7 in 2025 and 2026, averaging 3.4% in 2025, up from a previous prediction of 3.2%.
The IMF noted that the tariffs imposed so far have had a limited impact on economic activity and prices, partly because they were less extreme than initially feared and because households and companies brought forward consumption to beat their introduction. However, it cautioned that the full effects are only now beginning to show, citing the slow-burn economic impact of Brexit as evidence that uncertainty from policy shifts can take time to feed through into investment decisions.
The report highlighted several risks to the global outlook, including US immigration crackdowns that could reduce US GDP by 0.3%-0.7% and cause inflation to surge in sectors reliant on immigrant labour, such as construction and hospitality. It also warned of “stretched valuations” in stock markets and the risk of a “sharp correction” in share prices if investors reassess the likely gains from generative AI, which could lead to a downturn in investment.
Chancellor Rachel Reeves welcomed the upgraded UK growth forecast, stating: “This is the second consecutive upgrade to this year’s growth forecast from the IMF. It’s no surprise, Britain led the G7 in growth in the first half of this year, and average disposable income is up £800 since the election.” However, IMF chief economist Pierre-Olivier Gourinchas raised concerns about UK inflation, noting strong wage growth and higher inflation expectations as upside risks.
