Rachel Reeves cannot blame Donald Trump’s trade war for the downgrade in the UK’s growth prospects, the International Monetary Fund (IMF) has said, as it warns that Britain’s inflation rate will be higher than in the US. The Telegraph has more.
The IMF said UK Government policies were stoking price pressures and would push Britain’s inflation rate to the highest in the G7. It means inflation in the UK will outstrip the US rate even as the President continues his tariffs onslaught.
While the IMF said “the impact of recent tariff announcements” would weigh on growth it added that “an increase in gilt yields, and weaker private consumption amid higher inflation as a result of regulated prices and energy costs” were also behind the decision to cut its UK growth forecasts.
The fund also downgraded its global growth projections over the next two years, warning that the trade war could wipe as much as $1 trillion (£750 billion) off the world economy.
The UK is now expected to grow by 1.1% this year and 1.4% in 2026, down from projections of 1.6% and 1.5% just three months ago.
In a further blow to Labour’s ambition to boost living standards, the IMF also said GDP per head – a better proxy than overall growth – would almost stagnate this year and barely rise in 2026. Sir Keir Starmer has pledged to raise living standards across the country this Parliament.
The IMF said weak UK growth at the end of last year played a key factor in its decision to downgrade its forecast for this year. The Chancellor’s £40bn Budget tax raid preceded growth grinding to a near-halt in the final three months of 2024.
It said higher prices owing to steep increases in energy, water and council tax bills would weigh on consumer spending.
The IMF blamed “the impact of recent tariff announcements, an increase in gilt yields and weaker private consumption amid higher inflation as a result of regulated prices and energy costs” for the decision to cut its UK growth forecasts.
The IMF forecasts will deal a blow to Ms Reeves’s attempts to balance the books. Lower growth and higher borrowing costs have already eroded the wafer-thin headroom she has to meet her borrowing rules, with even a small deterioration now enough to wipe out her £9.9 billion buffer.
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