In an upbeat assessment for Chancellor Rachel Reeves, the IMF projects modest UK growth of 1.3% for both 2025 and 2026. This rate would see the UK outperform all other G7 economies except the United States next year, with major European economies like Germany, France, and Italy forecast to grow far more slowly at rates between 0.2% and 0.9%.

However, the report also projects that the UK will have the highest annual average inflation in the G7 in both 2025 and 2026, at 3.4% and 2.5% respectively, driven by high energy and utility bills. The fund describes this pressure as “temporary,” expecting inflation to return to its 2% target by the end of next year.

Responding to the forecast ahead of her visit to the IMF and World Bank annual meetings in Washington DC, Chancellor Rachel Reeves welcomed the assessment but admitted that “for too many people, our economy feels stuck”. Her opposition counterpart, Shadow Chancellor Sir Mel Stride, described the inflation outlook as “grim”, stating that households “were being squeezed from all sides”.

Professor Joe Nellis, economic adviser at accountancy firm MHA, said the report shows the UK is “edging slowly towards recovery, but the path to stability remains narrow”. He noted that persistent inflation limits the Bank of England’s ability to cut interest rates and complicates the Treasury’s task of stimulating growth ahead of the budget on 26 November.

Professor Nellis added that higher debt-servicing costs and slower revenue growth leave little room for fiscal manoeuvre. He concluded that the Chancellor’s budget “must balance credibility with compassion – supporting growth and investment while keeping a firm grip on borrowing and inflation expectations”.