UK forecast to be second-fastest growing economy in G7

According to new forecasts by the International Monetary Fund (IMF), the UK is predicted to be the second fastest growing country among the world’s most developed economies this year and next year.

Growth rates remain modest at 1.3% for both years, but this outperforms other G7 economies other than the United States in a year of intense trade and geopolitical tensions.

But the IMF predicts UK inflation will rise to the highest level in the G7 in 2025 and 2026, driven by larger energy and utility bills.

Inflation in the UK is expected to average 3.4% this year and 2.5% in 2026, but the IMF says this will be “temporary” and will fall to 2% by the end of next year.

The G7 consists of seven developed economies (US, UK, France, Germany, Italy, Canada and Japan), but the group does not include fast-growing economies such as China and India.

IMF is an international organization with 190 member countries. They work together to stabilize the global economy.

at the IMF economic growth forecastThe UK has overtaken Canada after its trade war-hit economy suffered the biggest downgrades in 2025 and 2026. Germany, France and Italy are forecast to grow much more slowly, at 0.2% to 0.9% in 2025 and 2026.

Chancellor Rachel Reeves has welcomed the new upgrade to the IMF’s outlook for the UK economy.

“But know that this is just the beginning. For many people, our economy appears to be stuck,” he said.

“Employees feel it every day, experts are talking about it, and I will deal with it.”

But shadow chancellor Sir Mel Stride pointed to inflation forecasts and said the IMF assessment made “cruel reading”.

He said UK households were being “squeezed from all sides”, adding: “Since coming into office, Labor has allowed the cost of living to soar, debts to balloon and business confidence to fall to record lows.”

The IMF said a slight overall improvement in the UK’s 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, thanks in part to the recently announced US-UK trade deal.

The global outlook is dominated by the world economy’s so-far “muted response” to heavy tariffs on almost all imports to the US, a weakening dollar, questions about the independence of the US Federal Reserve, and sky-high valuations of US technology companies.

The IMF expects some of this situation to improve soon, saying “resilience has given way to warning signs.” Tariffs borne by exporters and retailers in the US are now fueling higher commodity prices.

So far, the tariffs have resulted in higher prices for American appliance consumers, but not for food and clothing.

The IMF cited Brexit as an example of how uncertainty around major changes to trade regulations can lead to steady declines in investment after a delay.

The fund also hinted at a possible explosion of the AI ​​tech boom in the US.

“Overly optimistic growth expectations for AI may be revised in light of data from early adopters and could trigger a market correction,” the IMF said.

Disappointing profit numbers “could lead to a reassessment of the sustainability of AI-focused valuations and a crash in tech stock prices with systemic consequences. A potential collapse of the AI ​​boom could rival the dot-com crash of 2000-01 in terms of severity.”

The concentration of the stock market rally on a small number of firms and large funds from less regulated sources outside the banking sector posed particular risks.

Slower growth can also hit household wealth, as it has in recent crises, with major economies reducing the ability to use government borrowing to support their economies.

Conversely, the IMF also said that “accelerated adoption of artificial intelligence” could help unlock significant gains in productivity and help manage the global economy appropriately.

The IMF once again pointed out that the Spanish economy, the fastest growing economy in the West, is performing better. However, the war economy growth seen in Russia last year has now diminished.

There are also concerns about funding for the world’s poorest countries, as many countries, such as the UK and the US, have cut aid budgets to increase defense spending.

The forecasts were announced on the eve of the annual meetings of the IMF and World Bank in Washington DC, attended by world finance ministers and central bankers, with great emphasis placed on the new US bailout package for Argentina.