IMF: UK set to lag behind advanced economies

The UK economy is set to grow at a slower pace than the average across advanced economies in each of the next two years, the International Monetary Fund (IMF) has said, in a warning on the Labour government’s ability competitiveness against world powers.
The IMF has kept its UK growth figures for 2026 and 2027 at 1.3 per cent and 1.5 per cent respectively in its latest world economic outlook report. Each of the futures is lower than the average growth for advanced economies in 2026 and 2027, with the UN-backed body suggesting GDP would rise by 1.8 per cent and 1.7 per cent in each of the next two years. It revised up the UK growth estimate for 2025 by 0.1 percentage point to 1.4 per cent.
Chancellor Rachel Reeves said the IMF’s latest report put the UK “on course to be the fastest growing European G7 economy”. Her Conservative counterpart Mel Stride accused the government of “gaslighting the country” over its comments on the upgrade, adding IMF forecasts showed the UK economy was “flatlining”.
Economists suggested that investment in technology across the UK “contributed to activity” though lagged far behind the US economy, which grew 4.3 per cent in the third quarter of 2025.
The IMF also suggested that trade had remained “relatively robust” in the face of higher tariffs and “occasional flare-ups” between two of the world’s largest economies, the US and China. Both countries saw their growth forecasts revised up for 2026, though the US was projected to suffer from slower growth in 2027 than previously expected.
The report said risks were “tilted to the downside” given worries over the impact of AI on productivity triggering “abrupt financial market correction” and political tensions erupting and adding “new layers of uncertainty.”
High sovereign debt levels and larger fiscal deficits run by major economies could “put pressure on long-term interest rates,” economists also said.
New IMF forecasts come in the midst of a new trade dispute as President Trump announced he would impose 10 per cent tariffs from February on Nato allies backing Greenland’s sovereignty which includes the UK and Denmark.
Despite the latest set of trade threats, economists at the IMF said: “Against this backdrop of stabilising trade tensions and supportive financial conditions, the global economy has continued to be remarkably resilient.”
However, trade volume growth is set to decline from 4.1 per cent in 2025 to as low as 2.6 per cent while conflicts in the Middle East, Latin America and Ukraine could increase prices for consumers and investors.
Furthermore, a growing number of Britain’s business chiefs expect the country’s economy to decline over the next year, a survey of CEOs has revealed. Some 25 per cent of UK’s CEOs expect the nation’s economic fortunes to worsen this year, a figure up from 13 per cent in 2025 according to the latest survey by PwC.
The percentage now expecting economic growth stands at 38 per cent, down from 61 per cent in 2025, in a blow to business confidence in the government’s growth agenda.
In a more positive news for the Chancellor, the UK has strengthened its position as a global investment hub over the last twelve months.
Britain remained the second most attractive destination for international investment for chief executives last year, according to PwC, but now shares the position with Germany and India. All three respective countries were cited as locations likely to receive the greatest share of investment this year at 13 per cent each, marking a one per cent drop for the UK and a one per cent rise for Germany.
India had the greatest rise, jumping from seven per cent, while the US kept a firm grip on the top spot, with 35 per cent of chief executives citing it as the most attractive destination.