Market News

By William Schomberg

WASHINGTON (Reuters) -Britain's economic growth forecast for 2025 was cut by more than for other major European economies by the International Monetary Fund on Tuesday as the country braces for the global fallout from U.S. President Donald Trump's trade tariffs.

The Fund also said British inflation would be higher this year than it thought in January, showing the economic risks facing finance minister Rachel Reeves and Bank of England Governor Andrew Bailey who will attend IMF meetings this week.

Britain remained on course to have stronger economic growth than France, Italy and Germany in 2025, the IMF said.

But the pace of the increase was revised down to 1.1% from a projection of 1.6% made in January, a sharper cut than for the three other European heavyweights.

As well as the impact of Trump's tariffs and the sharp increase in borrowing costs in financial markets in recent weeks, the IMF linked the downgrade to weak momentum in the economy at the end of 2024 and the hit to demand from inflation.

The IMF trimmed its forecast for UK growth in 2026 to 1.4% from a previous estimate of 1.5%.

Despite the weaker outlook, the Fund raised sharply its forecast for British inflation this year to 3.1%, up from 2.4% in its January forecasts.

The change was bigger than an average 0.4 percentage-point increase in the IMF's inflation forecast for advanced economies. But it was less severe than a 1.0 percentage-point jump for the United States where Trump's tariffs will hit prices directly.

The IMF said the increase in its forecast for UK inflation "primarily reflects one-off regulated price changes."

Energy and water bills for households in Britain went up this month, alongside a hike in social security contributions paid by employers and a nearly 7% rise in the minimum wage which could also increase inflation pressure.

The IMF said it expected British inflation to slow to 2.2% in 2026, close to the BoE's 2% target.

In her response, Reeves highlighted how the IMF still saw stronger economic growth in the UK in 2025 than in Europe's other big countries.

"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," Reeves said in a statement.

She is due to meet U.S. Treasury Secretary Scott Bessent to push Britain's case for a trade agreement with Washington which could lower or eliminate the tariffs imposed by Trump on UK exports.

The IMF's new forecast of 1.1% growth in Britain's economy this year is stronger than the 1.0% expansion seen by the government's budget watchdog and the BoE's forecast of 0.75%.

(Writing by William Schomberg; Editing by Sharon Singleton)