Britain’s economic recovery is set to lose momentum next year, with growth expected to slow after a stronger-than-forecast 2025, according to the International Monetary Fund. The IMF said the UK would still outperform several major European economies but warned that global risks and domestic pressures were mounting…reports Asian Lite News
The UK economy is set to slow next year as inflation falls to 2 per cent and interest rates ease, according to the International Monetary Fund. In its latest forecast for the world economy, the IMF said the UK’s annual GDP would expand by 1.5 per cent this year, after 1.4 per cent growth in 2024, before easing to 1.6 per cent in 2026 as the impact of lower inflation and easing monetary conditions begins to fade.
The IMF’s projections were published in its World Economic Outlook, which assessed the outlook for advanced and emerging economies against a backdrop of geopolitical tension, uneven growth and shifting trade patterns. While the UK is expected to avoid recession and remain one of the stronger performers among large European economies, the fund cautioned that the pace of expansion would moderate as the post-inflation rebound runs its course.
Growth in the UK is forecast to remain above that of several eurozone peers. Germany is expected to grow more slowly, while France and Italy are also projected to lag behind the UK over the forecast period. The IMF said this reflected the UK’s relatively flexible labour market and the fading of some of the pressures that weighed on growth during the peak of the cost-of-living crisis.
After years of decline, this is the year the country turns a corner, the IMF said, pointing to the sharp fall in inflation and the gradual easing of financial conditions. But it added that the pace of growth would not be sustained at the same level into 2026 as pent-up demand is exhausted and global conditions become less supportive.
The IMF said that domestic demand had been boosted by falling inflation, which has improved real household incomes, and by an easing in monetary policy expectations. However, it warned that high levels of public debt, weak productivity growth and lingering uncertainty in global trade could weigh on medium-term prospects.
In its assessment of risks, the IMF highlighted the impact of tighter global financial conditions, continued geopolitical fragmentation and the possibility of renewed volatility in energy markets. It said that while inflation has fallen sharply in the UK, services inflation remains elevated, and wage growth is still running at levels that could complicate the path to sustained price stability.
The fund also pointed to structural challenges facing the UK economy, including low productivity growth and weak business investment. It said that addressing these issues would be critical to lifting the economy’s long-term growth potential and ensuring that the benefits of disinflation are translated into durable improvements in living standards.
Globally, the IMF said the world economy was expected to grow by around 3 per cent this year and next, with growth unevenly distributed across regions. The United States is forecast to outperform other advanced economies, while growth in China is expected to slow as the country grapples with property sector strains and demographic pressures.
For the UK, the IMF said fiscal policy would remain a key factor shaping the outlook. With public finances under strain and limited room for large-scale stimulus, the fund said that maintaining credibility while supporting growth would require careful balancing by policymakers. It added that any loosening of fiscal policy should be targeted and consistent with medium-term debt sustainability.
The IMF also warned that a worsening of global trade tensions could have a material impact on the UK’s open economy. It said that increased fragmentation of global trade and investment flows would likely dampen growth and raise costs, particularly for economies heavily reliant on international commerce.
While the near-term outlook for the UK remains relatively favourable compared with many peers, the IMF said the country should not be complacent. Sustaining growth beyond the next year would depend on boosting productivity, encouraging investment and navigating an increasingly uncertain global environment.
The fund concluded that although the UK is set to enjoy a period of steady, if unspectacular, growth, the risks to the outlook remain tilted to the downside. Slower global growth, renewed inflationary pressures or financial market volatility could all undermine the recovery, reinforcing the need for prudent economic management as the initial boost from falling inflation fades.
