Trump and tariffs at stake, but the UK surprises the IMF

The global institution raised its UK growth forecast to 1.6% this year, up from a previous estimate of 1.5%.

The International Monetary Fund (IMF) has revised upwards its growth forecast for the UK economy this year, but also warned about the possible impact of Donald Trump’s economic plans. According to the BBC, the global institution raised its growth forecast for the United Kingdom to 1.6% this year, against the previous estimate of 1.5%.

However, it said a possible wave of tariffs threatened by US President-elect Trump could worsen trade tensions, reduce investment and destabilize supply chains around the world.

The IMF also highlighted that while tariffs, tax cuts and deregulations may boost the US economy in the short term, they may ultimately have an adverse effect.

The prospect of higher taxes on imports in the US worries many world leaders, as it would make it more expensive for companies to sell their products in the world’s largest economy.

Tariffs are a central part of Trump’s economic vision — he sees them as a way to grow the U.S. economy, protect jobs and increase tax revenue — and has threatened to impose tariffs on China, Canada and Mexico on the first day of his presidency next week.

He also said he would impose 100% tariffs on the nine-nation BRICS bloc if they created a rival currency to the US dollar.

The IMF warned that such policies could set the stage for an inflationary boom followed by a crisis, which could weaken U.S. Treasury bonds as safe-haven assets.

In addition to upwardly revising its forecast for the United Kingdom, the IMF suggested that the British economy would perform better than European economies such as Germany, France and Italy over the next two years.

The revised forecast could be a boost for Chancellor Rachel Reeves, who has faced pressure over her policy decisions this week after data showed the economy has stagnated.

The Labor Party has made growth its main goal, but Reeves admitted the government needs to “do more to boost our economy” in order to improve living standards.

The latest IMF data suggests the UK economy saw weaker growth last year than the organization had predicted.

Responding to the IMF report, Reeves highlighted that the UK was the only G7 economy, other than the US, to have its growth forecast revised upwards in 2025.

Forecasts are never perfect, given the many factors that affect economic growth — from geopolitics to weather. But these reports can point in the right direction, especially when they line up with other forecasts.

The IMF predicted “stable, albeit weak” global growth of 3.3% in 2025 and 2026, below the historical average of 3.7%.

Its forecast for 2025 remained largely unchanged from the previous one, mainly because it expects higher growth in the US to offset lower growth in other major economies.

Trump’s imminent arrival at the White House dominates the risks section in the IMF’s biannual forecast for the world economy.

When in power previously, Trump started a trade war with China, and US policy led to tit-for-tat tariffs with the European Union.

This time, Trump proposed a 10% tariff on global imports, a 25% tariff on imports from Canada and Mexico, and a 60% tariff on Chinese goods.

The IMF warns that an inflationary boom in the US could be followed by a possible crisis that would weaken the role of US Treasury bonds as global safe-haven assets.

Investors view U.S. Treasury bonds as one of the safest bets possible because the bonds — which are like an IOU — are guaranteed by the U.S. government.

Furthermore, if business bureaucracy is cut too much, it could lead to an uncontrolled appreciation of the dollar, draining money from emerging economies and depressing global growth.

Trump’s continued deportations of illegal immigrants could “permanently reduce production potential” and also increase inflation, the IMF said.

Its chief economist, Pierre-Olivier Gourinchas, said “tremendous uncertainty” about Trump’s future policies is already affecting stock markets around the world.

On Thursday, the World Bank also warned that US tariffs could affect trade and depress global growth this year.

The bank forecasts global growth of 2.7% in 2025, which would be the weakest performance since 2019, except for the sharp contraction recorded at the height of the Covid-19 pandemic.