The International Monetary Fund projects the UK will be the second-fastest growing G7 economy in 2025, trailing only the United States, with expected growth of 1.3% this year and next. However, this positive outlook comes with significant challenges, as the UK faces the highest inflation rate among G7 nations at 3.4% in 2025 and 2.5% in 2026, driven primarily by rising energy and utility costs. Chancellor Rachel Reeves acknowledged that despite the improved growth forecast, many people still feel the economy remains „stuck,” highlighting the disconnect between macroeconomic indicators and public perception of economic wellbeing.
While the UK’s overall growth appears resilient, the per capita economic output tells a different story, with projections of just 0.4% growth in 2025 and 0.5% in 2026 – placing the UK at the bottom of the G7 rankings on this measure. The IMF’s global assessment also highlighted concerns about US tariff policies and their impact on global trade, though the organization noted the effects have been less severe than initially feared. Bank of England Governor Andrew Bailey echoed cautious optimism, suggesting inflationary pressures are easing following recent data showing rising unemployment and slowing wage growth.
The IMF’s broader global analysis raised alarms about several interconnected risks, including excessive optimism around artificial intelligence that could trigger market corrections, with tech stock concentration now „substantially higher” than during the 2000 dotcom bubble. The organization also pointed to ongoing trade policy uncertainty, citing Brexit as an example of how major trading arrangement changes can lead to sustained investment declines. Despite these challenges, the IMF maintains that UK inflation should gradually fall to the 2% target by the end of 2026, provided the Bank of England remains cautious about interest rate cuts amid persistent inflation expectations.
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