Rachel Reeves hammerblow as IMF says economy will flatline for next two years

Rachel Reeves has been hit with another hammerblow after the IMF predicted the UK economy will continue to flatline. GDP will only increase by measly amounts over the next two years, the respected global body forecasts.

The economy is predicted to grow by just 1.2% this year, and 1.4% in 2026. And the IMF has suggested that the Chancellor should slash taxes to turn around Britain's gloomy economic fortunes. In its World Economic outlook, published today, the IMF says the UK and other countries must make "growth-friendly adjustments" to boost their economies.

The Washington-based IMF warned at the weekend that the Chancellor may have to consider tax or further spending cuts to balance the books.

In its annual report on the UK economy, it said: "Risks to this strategy must be carefully managed.

"In an uncertain global environment and with limited fiscal headroom, fiscal rules could easily be breached if growth disappoints or interest rate shocks materialise."

The IMF praised the Government's fiscal plans, saying they "strike a good balance between But it cautioned that "delivering on this agenda will require overcoming significant challenges" amid the fallout from US President Donald Trump's trade war.

"Shockwaves from trade policies and rapid geopolitical developments are affecting global growth and creating heightened levels of volatility in financial markets," it said.

Added to this, it said, "fiscal space is limited and constrained by an elevated interest burden and increasing demands on public resources, including defence and aging-related spending".

The Chancellor 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.

"However, 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."

Fears are mounting that Ms Reeves is planning a massive tax raid this Autumn as she grapples to balance the books and revive the economy.

Shadow Chancellor, Mel Stride warned: "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."

In its world economic outlook the IMF says global economic growth will be stronger than previously thought, as US imports surged and some of President Donald Trump's tariff rates have been softened since April.

Global growth is forecast to be 3% in 2025 and 3.1% in 2026.

This is higher than the respective 2.8% and 3% forecast in the previous report in April.