IMF: UK economy to lag behind growth of advanced economies
The UK economy is set to grow at a slower pace than the average across advanced economies in each of the next two years, the International Monetary Fund (IMF) has said, in a warning on the Labour government’s ability competitiveness against world powers.
The IMF has kept its UK growth figures for 2026 and 2027 at 1.3 per cent and 1.5 per cent respectively in its latest world economic outlook report.
Each of the futures is lower than the average growth for advanced economies in 2026 and 2027, with the UN-backed body suggesting GDP would rise by 1.8 per cent and 1.7 per cent in each of the next two years.
It revised up the UK’s growth estimate for 2025 by 0.1 percentage point to 1.4 per cent.
Chancellor Rachel Reeves said the IMF’s latest report put the UK “on course to be the fastest growing European G7 economy”.
Her Tory counterpart Mel Stride accused the government of “gaslighting the country” over its comments on the upgrade, adding IMF forecasts showed the UK economy was “flatlining”.
Economists suggested that investment in technology across the UK “contributed to activity” though lagged far behind the US economy, which grew 4.3 per cent in the third quarter of 2025.
UK economy’s new tarif problem
The IMF also suggested that trade had remained “relatively robust” in the face of higher tariffs and “occasional flare-ups” between two of the world’s largest economies, the US and China.
Both countries saw their growth forecasts revised up for 2026, though the US was projected to suffer from slower growth in 2027 than previously expected.
The report said risks were “tilted to the downside” given worries over the impact of AI on productivity triggering “abrupt financial market correction” and political tensions erupting and adding “new layers of uncertainty”.
High sovereign debt levels and larger fiscal deficits run by major economies could “put pressure on long-term interest rates”, economists also said.
New IMF forecasts come in the midst of a new trade dispute as President Trump announced on the weekend he would impose 10 per cent tariffs from February on Nato allies backing Greenland’s sovereignty, which includes the UK and Denmark.
The tariff rate on goods could jump to 25 per cent in June if no deal for the US’s takeover of the geopolitically significant territory in the Arctic circle is agreed.
Prime Minister Keir Starmer said Trump was “completely wrong” for applying tariffs on allies who are “pursuing the collective security of NATO allies”, adding that he would engage in direct talks with the president over the tariff threat.
In spite of the latest set of trade threats, economists at the IMF said: “Against this backdrop of stabilising trade tensions and supportive financial conditions, the global economy has continued to be remarkably resilient.”
However, trade volume growth is set to decline from 4.1 per cent in 2025 to as low as 2.6 per cent while conflicts in the Middle East, Latin America and Ukraine could increase prices for consumers and investors.
Inflation in the UK is meanwhile expected to reach the target 2 per cent rate by the end of 2026 due to a weakened labour market contributing to easing wage growth.