The UK growth was “significantly” downgraded to 1.1% this year, by the International Monetary Fund, but the thinktank added that the UK had room for three further rate cuts this year.
The Washington-based body says its latest forecast is 0.5% lower than its January prediction, which comes after a raft of tariff disruption.
The UK is among four “significant downward revisions” among advanced countries from its last World Economic Outlook report at the start of the year. Canada, Japan, and the US are the other nations.
The thinktank blames: “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.”
The UK is forecast to grow by 1.4% next year, down 0.1% from January.
Inflation will hit a peak of 3.1% this year, a 0.7% hike from the body’s prediction at the start of the year, falling to 2.2% in 2026.
The body says the rise in the cost of living “primarily reflects one-off regulated price changes”.
Unemployment will remain stable at 4.5 million and 4.4 million over the two-year period.
However, the IMF’s chief economist Pierre-Olivier Gourinchas said the Bank of England had the scope to reduce interest rates by three-quarters of a point this year, from its current 4.5% level, in addition to February’s quarter-point cut.
By comparison, the US has been downgraded by 0.9% to 1.8% this year and is forecast to grow by 1.7% in 2026, down by 0.4%.
The body says: “In the US, consumer, business, and investor sentiment was optimistic at the beginning of the year but has recently shifted to a notably more pessimistic stance as uncertainty has taken hold and new tariffs have been announced.”
Earlier this month, the US imposed baseline tariffs of 10% on more than 75 nations, including the UK. While America has hit China with 145% of import charges and Beijing has put in place a 125% tariff on US goods.
The world economy is expected to lift by 1.4% this year, down by 0.5%, and 1.5% in 2026, 0.3% lower than the body’s January outlook.
Chancellor Rachel Reeves travels to America to hold her first in-person meeting with US treasury secretary Scott Bessent to hold trade talks in a bid to soften 10% tariffs imposed by the US on Britain.
Reeves said: “The IMF have recognised that this government is delivering reform which will drive up long-term growth in the UK, through our plan for change.
“The report also clearly shows that the world has changed, which is why I will be in Washington this week defending British interests and making the case for free and fair trade.”
