The International Monetary Fund (IMF) has forecast that the Bank of England will implement three additional interest rate cuts throughout 2025, citing persistent high inflation and a weakening UK economy. This prediction comes after a quarter-point cut in February and follows an assessment by the IMF indicating that the UK’s inflation rate is expected to remain the highest among advanced economies this year at approximately 3.1%. Key drivers behind this elevated inflation include continued pressures on household bills, particularly those related to energy and water, as well as lingering effects from global supply chain disruptions.
The IMF’s outlook suggests a slowdown in UK economic growth, projecting an expansion of just 1.1% for 2025 – significantly lower than the previously forecasted 1.6%. This downgrade is attributed to several factors including ongoing repercussions from US trade tariffs implemented under the Trump administration, which are diverting global trade flows and impacting British manufacturing and exports. Furthermore, the UK’s economic performance lags behind other major European economies, with projections indicating stronger growth in France, Italy, and Germany this year.
The IMF’s assessment highlights a complex interplay of economic challenges. While Trump tariffs could potentially mitigate some inflationary pressures by reducing the influx of cheaper goods from the US, they are also contributing to broader global economic uncertainty. IMF Chief Economist Pierre-Olivier Gourinchas emphasized that the global economy remains ‘severely tested,’ recovering from the “severe shocks” of recent years. The US growth forecast has been significantly downgraded, now estimated at 1.8% for this year, down from a previous projection of 2.7%. This reflects ongoing trade tensions and tariffs imposed by President Trump, which have resulted in retaliatory measures from countries including China.
The Bank of England is expected to respond with further interest rate cuts as it aims to bring inflation back within its target range of 2%. However, Chancellor Rachel Reeves has defended the UK’s economic prospects, asserting that the IMF still maintains a more optimistic view regarding growth in the UK compared to other major European nations. She stated her intention to advocate for free and fair trade agreements during this week’s International Monetary Fund spring gathering in Washington D.C., specifically focusing on securing a trade agreement with the United States that would reduce or eliminate US tariffs on British goods. The IMF’s analysis underscores a global economic landscape grappling with persistent inflationary pressures, escalating trade disputes, and significant uncertainty surrounding future growth trajectories.
