UK forecast to be second-fastest growing economy in G7

Faisal IslamBBC Economics EditorGetty ImagesChancellor Rachel Reeves mentioned, regardless of the IMF’s improve to UK financial development, “for too many individuals, our economic system feels caught”The UK is about to be the second-fastest-growing of the world’s most superior economies this 12 months, in keeping with new projections from the Worldwide Financial Fund (IMF).However the IMF additionally predicts the UK will face the very best charge of inflation within the G7 each this 12 months and subsequent, pushed by rising power and utility payments.Costs are forecast to rise by 3.4% this 12 months and a pair of.5% in 2026, however the IMF says larger inflation is more likely to be momentary, and may fall to 2% by the top of subsequent 12 months.UK financial development charges stay modest at 1.3% for this 12 months and subsequent, however that outperforms the opposite G7 economies aside from the US in 2025, in a torrid 12 months of commerce and geopolitical tensions.The G7 are seven superior economies – the US, UK, France, Germany, Italy, Canada and Japan – however the group doesn’t embody fast-growing economies similar to China and India.The IMF is a global organisation with 190 member nations. They work collectively to keep up international financial stability.Within the IMF’s forecast for financial development, it predicts the UK will push Canada out of second place, after its trade-war-affected economic system was hit by the largest downgrades for 2025 and 2026. Nonetheless, Canada is anticipated to retake second place subsequent 12 months when its economic system is forecast to develop at a charge of 1.5%.Germany, France and Italy are all forecast to develop much more slowly at charges of between 0.2 and 0.9% in 2025 and 2026.Chancellor Rachel Reeves welcomed the contemporary improve to the IMF’s outlook for the UK’s economic system.”However know that is simply the beginning. For too many individuals, our economic system feels caught,” she mentioned.”Working individuals really feel it each day, specialists discuss it, and I’m going to take care of it.”However highlighting the inflation forecasts, shadow chancellor Sir Mel Stride mentioned the IMF evaluation made for “grim studying”.He mentioned that UK households had been “being squeezed from all sides”, including: “Since taking workplace, Labour have allowed the price of dwelling to rise, debt to balloon and enterprise confidence to break down to file lows.”The IMF mentioned a slight general improve for the UK in its World Financial Outlook, from its earlier outlook in April, was attributable to “robust exercise within the first half of 2025” and an improved commerce outlook, partly because of the lately introduced US-UK commerce deal.Trump tariffs loom largeThe international outlook is dominated by the to date “muted response” of the world economic system to the imposition of hefty tariffs on virtually all imports into the US, a weakened greenback, questions in regards to the independence of the US Federal Reserve and sky-high valuations of US tech corporations.The IMF expects a few of this to unwind quickly, saying “resilience is giving option to warning indicators”. Within the US tariff prices which had been absorbed by exporters and retailers, at the moment are feeding into larger items costs. To this point tariffs have been mirrored in larger costs for American customers of family home equipment, however not of meals and clothes.In an interview with the BBC, the IMF’s chief economist Pierre-Olivier Gourinchas mentioned the worst penalties of a worldwide commerce conflict had been tempered.”Backside line: the impact of the tariff shock is there. It’s adverse for international outlook. It’s weighing down on funding and consumption choices, there’s commerce coverage uncertainty… but it surely’s not as unhealthy as anticipated as a result of the shock itself has been scaled down and there are these offsets”.The IMF cited Brexit for instance of how uncertainty round main adjustments in buying and selling preparations can, after a delay, result in regular falls in funding.Economist tells the BBC’s Michelle Fleury he sees “decrease development” and “larger inflation” for USAI warningThe IMF additionally pointed to a doable bursting of the US AI tech growth.”Excessively optimistic development expectations about AI could possibly be revised in gentle of incoming knowledge from early adopters and will set off a market correction,” the IMF mentioned.The IMF’s separate International Monetary Stability Report added to issues about tech inventory market valuations, concluding that “markets seem complacent”.Mr Gourinchas mentioned the IMF was not asserting that there can be an imminent bursting of a bubble.”Whether or not this might be adopted by a market correction, I do not suppose anybody can inform for positive, however we have now to be searching for potential danger, and positively this is likely one of the dangers,” he mentioned.The focus of the overvaluation of tech shares on a small variety of corporations was now “considerably larger” than on the dotcom bubble in 2020, the IMF mentioned.Nonetheless, Mr Gourinchas mentioned the “AI funding growth” was additionally serving to maintain US financial development. The forecasts had been launched on the eve of the annual conferences of the IMF and World Financial institution attended by the world’s finance ministers and central bankers in Washington DC, with appreciable consideration on a brand new US bailout for Argentina.Correction 14 October: An earlier model of this text mentioned the UK would have the second-fastest rising economic system of the G7 each this 12 months and subsequent. The UK can have the third quickest rising economic system in 2026.