The United Kingdom’s economic prospects have taken center stage in the latest global forecasts, with the International Monetary Fund (IMF) predicting that the UK will be the second-fastest-growing economy in the Group of Seven (G7) for 2025. This news, released on October 14, 2025, has sparked a flurry of reactions from policymakers, economists, and households alike, as the country finds itself navigating both promising growth and persistent inflation.
The IMF’s World Economic Outlook, unveiled just ahead of the Fund’s annual meetings in Washington DC, projects that the UK’s economy will expand by 1.3% in both 2025 and 2026. That growth rate, while modest on a historical scale, is expected to outpace all other G7 nations except the United States in 2025, according to the BBC and Sky News. The G7, comprising the US, UK, France, Germany, Italy, Canada, and Japan, represents the world’s most advanced economies—though notably, it excludes rapidly expanding countries like China and India.
The IMF’s upgrade for the UK is attributed to “strong activity in the first half of 2025” and an improved trade outlook, thanks in part to a recently announced US-UK trade deal, as reported by the BBC. The Fund’s assessment also notes that the UK will push Canada out of second place for G7 growth in 2025, after the Canadian economy suffered the biggest downgrades in the group. However, the tables are expected to turn in 2026, with Canada forecast to grow at 1.5%, retaking the second spot and pushing the UK to third place.
In contrast, Germany, France, and Italy are predicted to grow at a much slower pace, with increases ranging from just 0.2% to 0.9% over the next two years. This divergence highlights the UK’s relative resilience in a year marked by global trade tensions and geopolitical uncertainty. The IMF’s chief economist, Pierre-Olivier Gourinchas, told the BBC, “Bottom line: the effect of the tariff shock is there. It is negative for global outlook. It is weighing down on investment and consumption decisions, there is trade policy uncertainty… but it’s not as bad as expected because the shock itself has been scaled down and there are these offsets.”
Yet, the positive growth story comes with a significant caveat: inflation. The IMF expects the UK to have the highest inflation rate among major developed countries in both 2025 and 2026, driven primarily by higher energy and household bills. Prices are forecast to rise by an average of 3.4% in 2025 and 2.5% in 2026, before falling to around 2% by the end of 2026. The Fund maintains that this period of elevated inflation will likely be temporary, but it’s a pain point for many British households.
Chancellor Rachel Reeves has welcomed the IMF’s economic upgrade, seeing it as a sign of renewed optimism. “But know this is just the start. For too many people, our economy feels stuck,” Reeves said, according to the BBC. “Working people feel it every day, experts talk about it, and I am going to deal with it.” Her comments reflect an understanding that, while the headline numbers are encouraging, the lived experience of many Britons remains challenging.
The opposition has been quick to highlight these challenges. Shadow Chancellor Sir Mel Stride described the IMF’s inflation outlook as “grim reading,” warning that UK households are “being squeezed from all sides.” He added, “Since taking office, Labour have allowed the cost of living to rise, debt to balloon and business confidence to collapse to record lows.” This sharp criticism underscores the political stakes attached to economic performance, especially in a period where voters are acutely sensitive to the rising cost of living.
The IMF’s report also sheds light on broader global risks. The world economy, it says, is experiencing a “muted response” to the imposition of hefty tariffs on almost all imports into the US, a weakened dollar, and sky-high valuations of US tech companies. According to the Fund, “resilience is giving way to warning signs.” In the US, tariffs that had initially been absorbed by exporters and retailers are now beginning to feed into higher prices for goods, particularly household appliances. However, so far, food and clothing prices have not been significantly affected.
The IMF also warns of a potential correction in global financial markets, particularly if “excessively optimistic growth expectations about AI” are revised. The Fund’s Global Financial Stability Report concluded that “markets appear complacent,” and that the concentration of overvaluation in a small number of tech stocks is now “substantially higher” than during the dotcom bubble of 2020. Still, Gourinchas noted, “Whether this will be followed by a market correction, I don’t think anyone can tell for sure, but we have to be looking out for potential risk, and certainly this is one of the risks.”
Trade policy uncertainty is another factor weighing on the global outlook. The IMF cited Brexit as an example of how uncertainty around major changes in trading arrangements can, after a delay, lead to steady falls in investment. The UK’s economic growth, which surged immediately after its exit from the European Union, only began to fall steadily at the beginning of 2018, according to the IMF’s analysis. The Fund also pointed to stricter immigration policies in the US and UK as a threat to future GDP growth, warning that a crackdown could disrupt the global outlook and stretch valuations in stock markets.
Despite the challenges, the IMF’s overall global forecast is slightly more optimistic than anticipated, with global GDP expected to rise to 3.2% in 2025, up from 3% in the previous update. The Fund notes that the impact of protectionist trade measures has been less severe than feared, thanks in part to companies and households adjusting their behavior to avoid the brunt of new levies.
As the IMF and World Bank meetings get underway, with Finance Minister Rachel Reeves and Bank of England Governor Andrew Bailey representing the UK, the focus will be on how policymakers can sustain growth while managing inflation and navigating an increasingly complex global environment. The UK’s position as a G7 growth leader is a welcome development, but the road ahead is anything but straightforward. For British households and businesses, the question remains: will stronger growth translate into tangible improvements in living standards, or will inflation and uncertainty continue to cloud the economic horizon?
For now, the UK stands at a crossroads—buoyed by improved forecasts but facing real-world pressures that demand careful, decisive action from its leaders.
