International Monetary Fund Slashes UK Growth Forecast For 2025 As Tariff Uncertainties Bite

23rd April 2025

The International Monetary Fund (IMF) has slashed the UK's growth forecast for 2025, revising it down from 1.6% to 1.1%.

The downgrade is largely attributed to the impact of U.S. tariffs, higher government bond yields, and weaker private consumption amid rising inflation2. Inflation in the UK is now expected to be 3.1%, the highest among the G7 nations.

The IMF warned that the global economy is at a "critical juncture", with growth expected to drop to 2.8% in 2025 and 3% in 2026. The UK's downgrade reflects a smaller carryover from 2024, higher borrowing costs, and the economic uncertainty caused by trade tensions.

Chancellor Rachel Reeves responded by emphasizing that the UK remains the fastest-growing European G7 country, despite the IMF's downward revision. She is currently in Washington, D.C., advocating for free and fair trade.

The IMF's downgraded growth forecast has several implications for the UK economy, particularly in the context of high inflation, rising borrowing costs, and global trade tensions. Here's what it could mean in practical terms:

1. Consumer Spending & Living Standards
Slower growth often translates to weaker wage increases and higher costs of living.

With inflation still high (expected at 3.1% in 2025), households could feel the squeeze, leading to reduced consumer spending—a key driver of economic growth.

2. Business Investment & Market Confidence
Higher borrowing costs make it more expensive for businesses to invest and expand.

Uncertainty around trade policies and tariffs could discourage firms from making long-term commitments, affecting job creation and economic dynamism.

3. Government Debt & Fiscal Policy
Rising bond yields make government borrowing more expensive, putting pressure on public finances.

The Chancellor might have to adjust spending plans, potentially impacting social programs or tax policies.

4. International Trade & Relations
The IMF highlighted U.S. tariffs as a major factor—suggesting potential trade disruptions.

The UK government will likely need to negotiate new agreements to protect exports and economic stability.

5. Global Standing & Investor Sentiment
If the UK is the slowest-growing G7 economy, it might struggle to attract investment compared to other nations.

However, UK policymakers will aim to counter negative sentiment through pro-business strategies.

What Can The Government Do - Speculation only so far -
To address the challenges highlighted by the IMF's forecast, the UK government might consider a mix of short-term measures and long-term strategies:

1. Tackling Inflation
Implementing targeted subsidies or tax relief for households to ease the cost-of-living crisis.

Strengthening the Bank of England's monetary policy tools to stabilize inflation without stifling growth.

2. Supporting Businesses
Introducing low-interest loans or tax incentives to encourage investment and innovation.

Expanding trade agreements to counteract the impact of tariffs and boost exports.

3. Fiscal Adjustments
Reassessing public spending priorities to ensure efficient use of resources while maintaining essential services.

Exploring progressive taxation to balance fiscal pressures without overburdening the middle class.

4. Boosting Consumer Confidence
Launching campaigns to promote domestic tourism and local businesses, stimulating economic activity.

Enhancing job creation programs to reduce unemployment and improve disposable income.

5. Strengthening Global Trade Relations
Negotiating with the U.S. and other trade partners to reduce tariffs and foster fair trade practices.

Investing in export-driven sectors like technology and renewable energy to diversify the economy.