Trade tensions linked to US tariff plans will reduce UK economic growth next year, according to the International Monetary Fund.
However, the global economics body upgraded its forecast for the UK economy this year after strong growth in recent months.
The IMF said an “economic recovery is under way” in the UK, with GDP, gross domestic product, set to increase by 1.2% this year.
In April, the organisation had previously pointed towards 1.1% growth for the year.
On Tuesday, the organisation also held its prediction that the UK economy will grow by 1.4% in 2026.
However, economists at the body said this will come despite global trade tensions wiping 0.3 percentage points off growth for the year.
Trade tensions will weigh on growth through “persistent uncertainty, slower activity in UK trading partners, and the direct impact of remaining US tariffs on the UK”, the IMF said.
The Risks of Weaker Global Growth
It also highlighted that there is a greater risk that growth could be weaker than expected, due to the potential that global trade uncertainty will impact supply chains and weaken private investment.
Meanwhile, the IMF indicated that policy reforms by the UK government to overhaul planning rules and loosen regulatory hurdles could support future growth.
“The authorities’ structural reforms, including to planning, and the increase in infrastructure investment could increase potential growth if properly implemented,” its statement on the UK economy said.
Chancellor Rachel Reeves has made growing the economy a key priority for the government in order to help fund future spending plans.
On Tuesday, the chancellor said: “The UK was the fastest growing economy in the G7 for the first three months of this year and today the IMF has upgraded our growth forecast.
“We’re getting results for working people through our plan for change – with three new trade deals protecting jobs, boosting investment and cutting prices, a pay rise for three million workers through the national living wage, and wages beating inflation by £1,000 over the past year.”
Earlier this month, the Bank of England predicted that the UK economy would grow by 1% in 2025 and 1.25% next year, as it reduced interest rates to 4.25% – their lowest level since May 2023.
The IMF said the central bank should “continue to ease monetary policy gradually”, indicating it expects further reductions in interest rates.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
