UK Economic Outlook 2025: What the IMF Forecast Means for Your Borrowing Costs 💷📈

Last updated: May 27, 2025, 2:59 p.m.

The International Monetary Fund (IMF) has slightly upgraded its UK growth forecast for 2025, predicting a 1.2% increase in GDP — up from its previous estimate of 1.1%. While this signals that a fragile recovery is underway, the IMF has warned that rising inflation, global trade tensions, and tight fiscal rules could dampen progress.

For UK households and businesses, this means uncertain times ahead — especially when it comes to interest rates and borrowing costs. Here's how the IMF's latest findings might impact your mortgage, loan, or credit plans. 🏠📊

Growth Rebound but With Caveats 🚧

According to Luc Eyraud, head of the IMF's UK mission, growth in early 2025 was "very strong," thanks to boosts in consumer spending and business investment. But these figures were recorded before:

📉 US tariffs kicked in
💼 UK employer taxes rose in April
💸 Inflation unexpectedly jumped to 3.5% in April, up from 2.6% in March

These developments cast a shadow over the upbeat Q1 data, and could mean higher interest rates for longer if inflation proves sticky.

IMF’s Policy Advice: Tread Carefully 🎯

The IMF praised the UK’s infrastructure plans and new planning reforms, but warned that fiscal credibility depends on discipline. Chancellor Rachel Reeves has committed to two key rules:

✅ Government spending will be funded by tax income (not borrowing)
📉 UK debt must fall as a share of GDP by 2029/30

The IMF supports these goals but suggests loosening some procedural rules, such as reducing the number of annual Office for Budget Responsibility (OBR) assessments. That would allow for more flexibility amid global volatility.

What This Means for UK Interest Rates 🏦💳

With inflation running higher than expected, the Bank of England may:

❌ Delay any rate cuts originally expected in late 2025
📈 Keep base rates elevated to control price rises
⚠️ Tighten further if inflation does not cool in H2 2025

This affects:

🏡 Mortgage rates: Fixed-rate deals may remain in the 4–5% range
💳 Personal loans: APRs could stay above 7–8%
📉 Savings accounts: Good news — interest on savings likely remains strong

Trade Tensions and 2026 Outlook 🌍📉

While growth is expected to rise to 1.4% in 2026, the IMF notes global trade challenges may reduce that number by 0.3%. This includes:

📉 Slower growth among trading partners
🛃 Uncertainty from US trade policy under President Trump
🔄 Friction in global supply chains

Still, the UK has signed major trade deals with the EU, India, and the US — which the IMF views as positive steps toward market stability.

Inflation Trajectory 🔥📊

IMF projections suggest UK inflation will settle around 2.2% by 2026, near the Bank of England's 2% target. However, the spike to 3.5% in April has pushed expectations for easing back to late 2026.

Until then, UK borrowers should be prepared for:

🔒 Higher mortgage renewals
💼 Tougher credit conditions for small businesses
📈 Sustained upward pressure on rents and consumer goods

Conclusion: Navigate Carefully, Compare Wisely 🧠📉

The UK economy is on a slow path to recovery, but rising inflation, policy constraints, and global headwinds are keeping interest rates elevated.

📌 If you’re considering a mortgage, personal loan, or refinance, use compareinterestrate.uk to:

Track daily interest rate trends
Compare fixed and variable mortgage deals
Review APRs on personal and business loans

👉 Stay informed, stay ahead — and protect your finances in a volatile climate.