The world economy will not suffer as badly from President Trump’s tariffs as previously thought, the International Monetary Fund (IMF) has predicted.
Global growth is set to be three per cent this year, the IMF said, which is higher than its previous 2.8 per cent forecast made in April.
The world economy will grow by a further 3.1 per cent in 2026, which is also slightly higher than its three per cent growth forecast made earlier this year.
Economists at the UN agency said it upgraded its growth forecast due to “front-loading” before Trump’s Liberation Day, where businesses and consumers imported goods before tax increases came into effect.
But they warned that this burst of activity risked creating “exposures” that could leave firms vulnerable from having too much stock or holding on to additional costs.
The lower-than-expected average tariff rate and improvements in financial markets are also set to benefit the world economy, allowing forecasts to be revised.
IMF maintains UK growth forecast
Deals struck between Trump and his counterparts in China and the EU, which agreed to invest hundreds of billions in US oil in exchange for a reduction in tariffs to 15 per cent, have reflected easing trade war tensions since April.
The IMF said tariffs remained a threat given looming deadlines on the expiry of additional tariffs could hamstring activity and unnerve business owners.
Despite Donald Trump’s trade deal with Keir Starmer to limit tariffs on carmakers and wipe out taxes on aerospace manufacturers, the IMF did not upgrade its growth forecast for the UK.
The major forecaster said in April it expected UK GDP to inch up 1.2 per cent this year and 1.4 per cent next year.
Chancellor Rachel Reeves said: “The IMF’s forecasts show that the UK remains the fastest growing European economy in the G7 despite the global economic challenges we are facing.
“I am determined to unlock Britain’s full potential, which is why we are investing billions of pounds through our Plan for Change – in jobs through better city region transport, record funding for affordable homes, as well as backing major projects like Sizewell C to drive economic growth and put more money into people’s pockets.”
Shadow chancellor, Mel Stride said: “Labour promised growth but the IMF has confirmed what Britain already knows: under Labour, growth is going nowhere.
“Business confidence has collapsed all because of the Chancellor’s reckless economic choices.
“You can’t tax your way to growth. We need to back British businesses and workers.
“Yet Rachel Reeves looks set to do it all over again in the autumn – yet more taxes, yet more pain for our economy.”
The US economy received a larger upgrade to its growth forecast for 2026, with its economy now set to expand by two per cent next year.
IMF officials emphasised the importance of the independence of central banks in what appeared to be a comment aimed to address Trump’s attacks on Federal Reserve chair Jerome Powell.
It also called for more comprehensive trade deals to be struck to ease strains on global economies.
The ongoing conflict in the Middle East was also flagged as a potential risk to shipping and trade while AI was highlighted as an opportunity to boost productivity around the world.
But the IMF warned “larger fiscal deficits” could keep interest rates higher and potentially “reignite volatility” in markets.