**IMF Revises UK Growth Forecast Amid Economic Uncertainty**

The UK economy is projected to experience slightly higher growth in 2025 than originally anticipated, according to the latest assessment by the International Monetary Fund (IMF). Despite this positive revision, the IMF cautioned that Chancellor Rachel Reeves must adhere to fiscal rules on taxation and spending to sustain this trajectory.

In its comprehensive annual review, the IMF forecasted an economic growth rate of 1.2% for 2023, projected to increase to 1.4% by 2026. This outlook comes shortly after the IMF had downgraded its 2025 growth expectations from 1.6% to 1.1%. Luc Eyraud, the IMF's UK mission chief, highlighted "very strong" growth in the first quarter of the year, driven by heightened consumer spending and business investment.

Recent official statistics corroborate this growth, though they predate the impact of new US import tariffs and increased UK employer taxes introduced in April. While the IMF commended the UK government’s planning reforms and infrastructure investment plans for their potential to bolster growth, it raised concerns about the prevailing global uncertainty and volatile financial market conditions. It also pointed out the challenge for Chancellor Reeves in balancing taxation with public spending.

Suggesting some adjustments to the government’s fiscal rules, the IMF proposed reducing the frequency of the Office for Budget Responsibility’s financial assessments from twice to once a year. These rules, largely self-imposed by governments in affluent countries, are designed to maintain financial market credibility. The UK government, however, has consistently maintained that its fiscal rules are "non-negotiable."

The IMF's report indicated that global trade tensions, particularly activities of the UK's trading partners and the repercussions of US tariffs, are expected to weigh on next year’s growth, reducing it by 0.3% by 2026. Nevertheless, the IMF noted that recent trade agreements with the EU, India, and the US reflect the UK government’s commitment to creating a more predictable environment for exporters.

Chancellor Reeves welcomed the IMF's findings, asserting that the government’s trade deals are crucial for job protection, investment growth, and price reduction. The report follows an earlier IMF forecast that reduced UK growth expectations for this year to 1.1% due to rising borrowing costs, US tariffs, and inflation pressures.

Despite inflationary challenges, the IMF expects UK inflation to decrease to 2.2% by 2026, aligning closely with the Bank of England's target of 2%. This projection contrasts with the recent unexpected rise in April inflation to 3.5%, up from 2.6% in March. Analysts predict ongoing inflation will persist until the second half of the year, eventually stabilizing by 2026.

With government borrowing reaching £20.2 billion in April, analysts foresee the likelihood of tax increases later in the year. The government continues to borrow to support both day-to-day spending and long-term infrastructure projects. While inflation rates have moderated, they still exceed the Bank of England’s target, complicating the landscape of interest rate adjustments in the year ahead.