By David Milliken
WASHINGTON (Reuters) -The International Monetary Fund nudged up its growth forecast for Britain this year but trimmed it for 2026 and predicted that the country would record the highest inflation rate among major advanced economies both this year and next.
British finance minister Rachel Reeves and Bank of England Governor Andrew Bailey are attending the annual IMF meetings in Washington this week, where participants will be discussing how the world is adjusting to President Donald Trump’s new tariffs.
The IMF forecasts Britain’s economy will expand at an annual pace of 1.3% this year and next – a 0.1 percentage point upward revision for 2025 and a 0.1 percentage point downward revision for 2026 compared with the last forecasts in July.
The Bank of England published a similar forecast in August.
“This is the second consecutive upgrade to this year’s growth forecast from the IMF,” Reeves said in response to Tuesday’s change. “But I know this is just the start. For too many people, our economy feels stuck.”
The IMF’s forecast for Britain comes alongside a broader update to its global forecasts which overall show slightly less of an impact on advanced economies than initially feared from the highest U.S. tariffs in a century.
Britain’s growth rate is the second-fastest in the Group of Seven advanced economies this year and the third-fastest for 2026, behind the United States and Canada.
The IMF said the upward revision to Britain’s 2025 growth reflected a strong expansion in the first half of the year. However, total growth over 2025 and 2026 is still forecast to be 0.4 percentage points below what the IMF predicted in October 2024 before Trump was elected.
Much of British economic growth also reflects historically high levels of immigration.
On a per head basis – a better proxy for average living standards – the IMF forecasts British gross domestic product will rise 0.4% this year and 0.5% in 2026. The latter is the weakest forecast in the G7 although close to Britain’s historic average in the decade running up to 2016’s Brexit referendum.
Consumer price inflation is forecast to average 3.4% this year and 2.5% next year, the IMF said, the highest in the G7 and an upward revision since April’s forecast.
High inflation is limiting the BoE’s ability to cut interest rates and has contributed to its cost for new government borrowing being the highest in the G7 too.
The IMF said the higher inflation partly reflected one-off rises in regulated prices and “is projected to be temporary, with a loosening labour market and moderating wage growth eventually helping inflation return to target at the end of 2026” – a few months earlier than the BoE expects.
The IMF sees Britain’s unemployment rate remaining at its current four-year high of 4.7% through this year and next.
(Reporting by David Milliken; editing by Suban Abdulla)
Comments