On July 21, the Executive Board of the International Monetary Fund (IMF) concluded its Article IV Consultation with the United Kingdom. The consultation highlighted a rebound in the UK's economy during the first quarter of 2025, driven mainly by business investment. However, headline inflation increased due to waning effects from lower energy prices.
The IMF projects economic growth for the UK at 1.2 percent in 2025 and 1.4 percent in 2026. This forecast is supported by monetary easing, positive wealth effects, and increased confidence boosting private consumption. Public spending is also expected to contribute to growth following an increase in the October budget.
Despite these positive projections, risks remain on the downside. Financial conditions tighter than expected and rising precautionary savings by households could hinder private consumption and slow recovery. Global trade uncertainty continues to pose a threat to UK growth by affecting world economic activity and private investment.
The IMF's Executive Directors agreed with the staff appraisal that the UK's economy is set for modest recovery in 2025, with further acceleration anticipated in 2026. They commended efforts towards policy stability and pro-growth reforms but noted domestic and global risks remain tilted to the downside.
Directors emphasized maintaining fiscal strategy while stabilizing net debt over the medium term, which may require additional measures if risks materialize. They supported improvements to the fiscal framework aimed at enhancing predictability and reducing pressures for frequent policy changes.
A gradual approach to monetary policy easing was deemed appropriate given elevated uncertainty. The Bank of England's implementation of scenario-based communication and conditional guidance was welcomed as part of its transition towards a demand-driven repo-based framework.
The financial sector remains broadly resilient according to Directors, who stressed enhancing gilt market resilience amid rising global risks. Progress in assessing vulnerabilities in the non-bank sector was acknowledged, along with encouragement for further collaboration internationally to mitigate financial risks.
Directors also recognized ongoing structural reforms across various areas as key priorities for delivering growth benefits while supporting multilateral cooperation efforts.