The International Monetary Fund has upgraded its growth forecasts for the UK and said the Bank of England could cut interest rates twice this year.

The Washington-based fund said global growth prospects had remained “resilient” after markets were roiled by tariffs announced by the United States in April, which have been lowered for the UK, China and the European Union ahead of an August 1 deadline. It also upgraded its forecasts for the US economy, acknowledging that the hit from President Trump’s tariffs has not yet been felt in the world economy.

“This modest decline in trade tensions, however fragile, has contributed to the resilience of the global economy so far,” Pierre-Olivier Gourinchas, the IMF’s chief economist, said. “Most regions are experiencing modest growth upgrades this year and next.”

The fund upgraded the UK’s growth outlook by 0.1 percentage points to 1.2 per cent in 2025 and kept its 1.4 per cent 2026 growth estimate unchanged. It said the base rate could fall to 3.75 per cent this year — implying two interest rate cuts as predicted by traders.

The UK will be the third-fastest growing economy in the G7 this year and next, behind the US and Canada. Germany is still on course to be the worst performing, with a stagnant GDP rate of 0.1 per cent this year.

The US economy, which is expected to be the worst hit by tariffs, received one of the biggest upgrades of 0.3 percentage points in 2026 to 2 per cent GDP growth. The IMF said the world’s largest economy would expand by 1.9 per cent this year, a 0.1 per cent upgrade on its last forecast made in April. The planned average tariff rate from the US on the rest of the world has fallen from 24 per cent to about 17 per cent, the IMF said.

The world economy is expected to expand by 3 per cent this year — a 0.2 percentage points upgrade from April — and accelerate to 3.1 per cent in 2026.

Rachel Reeves, 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.”

The figures come ahead of a Friday deadline for US negotiations with the rest of the world over tariffs, and will be welcomed by the Trump administration, which has hit out at economic forecasters who have widely predicted that the US economy, labour market and inflation would all worsen as a result of the planned import levies.

The administration points to 2018, when Trump also hit trading partners with tariffs, as evidence that there would be limited economic pain from trade protectionism for US households and businesses.

The IMF warned that most of the pain from trade protectionism was yet to come. It said the resilience of many economies was down to countries in Europe and Asia front-loading on imports before the imposition of the planned tariffs, declining global interest rates, and the positive effects from the 8 per cent fall in the value of the dollar this year.

“Resilience is welcome, but it is also tenuous,” Gourinchas said. “While the trade shock could turn out to be less severe than initially feared, it is still sizeable, and evidence is mounting that it is hurting the global economy.

“Compared to our pre-April 2 forecast, global growth is revised downwards by 0.2 percentage points this year. And we continue to project a persistent decline in global trade as a share of output despite the recent frontloading, from 57 per cent in 2024 to 53 per cent in 2030.”

The UK is one of the largest economies expected to benefit from falling interest rates this year and next, the IMF said.

Last week the fund warned the chancellor that she needed to switch to having only one main fiscal event a year, to abolish the triple lock on pensions uprating, and to consider charging higher earners for use of the NHS, in an attempt to meet her fiscal rules.