Britain’s economy has received a welcome, albeit modest, upgrade to its growth forecast from the International Monetary Fund (IMF), but the good news is heavily tempered by a stark warning on inflation. The fund has lifted the UK’s GDP growth projection for this year to 1.3%, making it the G7’s second-strongest performer.
Chancellor Rachel Reeves seized on the upgrade, noting it was the second in a row and that the UK had led the G7 in growth during the first half of the year. The IMF’s forecast suggests the UK economy will expand by 2% across the year, a solid performance in the current global climate.
However, the IMF’s report quickly pivots to a more worrying trend: persistent and rising inflation. The fund now expects UK inflation to average 3.4% in 2025, the highest rate among all G7 countries. This figure is up from a previous estimate of 3.2%, indicating that the battle against rising prices is far from over. For 2026, inflation is expected to be 2.5%, also higher than earlier predictions.
The IMF’s chief economist, Pierre-Olivier Gourinchas, identified strong wage growth and heightened inflation expectations among the public as key risks. “Households and firms in the UK are becoming maybe a bit less certain that inflation is coming down quickly,” he observed, advising the Bank of England to remain “very cautious” in its approach to cutting interest rates.
This dual forecast—solid growth paired with stubborn inflation—places UK policymakers in a challenging position. The IMF’s analysis suggests that while the economy has momentum, managing the persistent cost-of-living pressure will be the nation’s primary economic challenge in the coming years.