The UK’s economy will take a big hit this year from global trade chaos and high energy prices, the International Monetary Fund (IMF) has warned.
Britain’s GDP will grow by 1.1 per cent in 2025, according to the fund – down from a rate of 1.6 per cent forecast in January. Next year’s growth will also be lower than previously expected.
The news will come as a blow to Rachel Reeves as she pushes to grow the economy and boost living standards amid economic turbulence around the world.
In the latest edition of its world economic outlook published on Tuesday, the IMF said that Donald Trump’s tariffs “will lead to a significant slowdown in global growth in the near term”.
It warned that thanks to the extreme uncertainty about US economic policy, it is becoming harder to forecast GDP growth and other key metrics such as inflation and unemployment.
This year and next, the IMF predicted, Britain’s economy will grow more slowly than was thought in January when the last set of forecasts were published.The fund said: “For the United Kingdom, the growth projection for 2025 is 1.1 percent, lower by 0.5 percentage point compared to the forecast in January.
“This reflects a smaller carryover from 2024, the impact of recent tariff announcements, an increase in gilt yields, and weaker private consumption amid higher inflation as a result of regulated prices and energy costs.”
UK inflation will stand at 3.1 per cent over the course of this year, up from the 2.4 per cent previously expected. This is primarily due to the increase in the cost of energy and other bills whose price is set by the Government and regulators.
From 2028 onwards, GDP growth will be slightly higher than previously thought, the IMF said. The Chancellor said in response to the figures: “This forecast shows that the UK is still the fastest growing European G7 country. The IMF have recognised that this government is delivering reform which will drive up long-term growth in the UK, through our plan for change.
“The report also clearly shows that the world has changed, which is why I will be in Washington this week defending British interests and making the case for free and fair trade.”
The IMF’s prediction follows similar downgrades from the Office for Budget Responsibility and Bank of England.
The government has made growing the economy a key aim of this Parliament, which it hopes will help avoid further cuts or tax rises.
Reeves is meeting with finance ministers from other countries this week at a gathering of the IMF which is expected to focus on ways to minimise the impact of Trump’s trade wars.
The world economic outlook called on governments to keep borrowing low in order to ensure that they are resilient in the face of markets chaos.
Any fiscal support for those affected by the tariffs should be time-limited and “narrowly targeted”, in contrast to interventions such as the subsidy on energy bills which the UK Government introduced in the aftermath of Russia’s invasion of Ukraine.
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