IMF Raises UK Economic Forecast During Concerns Over Donald Trump's Policies and Global Uncertainty

The International Monetary Fund (IMF) has revised its UK economic growth forecast upward while simultaneously voicing concerns about the potential repercussions of Donald Trump’s proposed economic measures. This comes at a time when the former US president is set to return to the White House, bringing policies that could ripple across global markets and economies.

UK Growth Prospects Brighten

The IMF’s latest economic outlook report brings some relief for the UK, with the institution upgrading the country’s growth forecast for 2025 from 1.5% to 1.6%. This modest yet significant adjustment places the UK ahead of major European counterparts like Germany, France, and Italy in terms of projected economic performance for the next two years.

Chancellor Rachel Reeves welcomed the IMF’s improved outlook but acknowledged that the UK faces persistent challenges in achieving sustainable growth. “Our focus remains on improving living standards and creating a resilient economy,” Reeves said, emphasizing Labour’s commitment to fostering an environment conducive to long-term prosperity.

While the upgraded forecast reflects cautious optimism, the IMF’s report highlighted that the UK’s growth last year fell short of expectations, illustrating the fragility of the recovery. Globally, the IMF anticipates stable yet subdued growth of 3.3% for 2025 and 2026, below the pre-pandemic historical average of 3.7%.

Donald Trump’s Policies Raise Alarms

Dominating the global economic discourse is Donald Trump’s anticipated return to office and his proposed trade and fiscal policies, which the IMF warns could disrupt international trade and investment. Key among Trump’s proposals are sweeping import tariffs, tax cuts, and deregulation—policies aimed at bolstering domestic growth but with potential inflationary consequences.

Trump’s tariff plan includes a 10% blanket duty on all imports, escalating to 25% for goods from Canada and Mexico, and a staggering 60% tariff on Chinese products. These measures are designed to protect American jobs and revenues but could significantly inflate costs for US businesses and consumers. Additionally, Trump’s approach to global trade raises concerns over supply chain disruptions and retaliatory measures from trading partners.

Pierre-Olivier Gourinchas, the IMF’s chief economist, warned of the risks posed by these policies, predicting an inflationary boom potentially followed by an economic downturn. “We see an upside risk on inflation,” Gourinchas stated, emphasizing the challenges Trump’s policies could pose to monetary stability. He added that such policies could erode investor confidence in US Treasury bonds, traditionally considered a global safe haven.

Impacts on Global Trade and Investment

The IMF’s report underscores the broader implications of Trump’s economic agenda, cautioning that heightened protectionism could deepen trade tensions and deter international investment. During Trump’s earlier presidency, trade wars—particularly with China—resulted in significant market volatility and economic uncertainty. Analysts fear a resurgence of these conflicts, with proposed tariffs on the BRICS bloc’s exports exacerbating geopolitical tensions.

The World Bank echoed the IMF’s concerns, projecting global growth of just 2.7% in 2025, the weakest pace since 2019, excluding the COVID-19-induced slump. Such slowdowns could disproportionately impact emerging markets and developing economies, which are highly dependent on global trade flows.

China’s Economic Struggles

Amid these global uncertainties, China’s economic outlook remains bleak. The world’s second-largest economy faces significant challenges, including a property sector crisis and declining trade volumes. The IMF’s report forecasts continued sluggish growth for China, with the risk of deflation looming large despite recent stimulus efforts by Beijing.

China’s growth reached 5% last year, marginally exceeding forecasts but falling short of its 2023 performance. Gourinchas emphasized the need for more decisive action from Chinese policymakers to stabilize the economy. “Without targeted reforms, the risk of entering a deflationary regime is real,” he cautioned, calling for structural changes to address the underlying economic vulnerabilities.

Monetary Policy in Focus

The uncertainty surrounding Trump’s policies has already influenced market expectations, with traders revising their outlook for US Federal Reserve rate adjustments. The IMF predicts that the Federal Reserve will implement modest rate cuts of 0.5% in 2025 and 2026, aligning with the Fed’s cautious approach to managing inflation and sustaining growth.

In the UK, the Bank of England faces a similarly delicate balancing act. Governor Andrew Bailey has signaled a shift in policy focus, indicating that the priority will be fostering stability rather than aggressively combating inflation. The IMF’s improved growth forecast provides a buffer for the UK, but analysts warn that inflationary pressures could resurface if global conditions worsen.

A Call for Global Cooperation

The IMF’s report concludes with a plea for coordinated international action to address the mounting economic challenges. Whether mitigating the inflationary risks posed by Trump’s policies or navigating China’s slowdown, global leaders must prioritize collaboration over confrontation.

“The world economy is at a crossroads,” Gourinchas noted. “To ensure sustainable growth, we need forward-thinking policies that balance national interests with global stability.”

As the global economic landscape grows increasingly complex, the stakes for effective policymaking have never been higher.