Sterling Outlook Darkens as IMF Predicts UK Will Trail G7 Peers

The British Pound (GBP) faces fundamental headwinds after the International Monetary Fund (IMF) released projections indicating the UK economy is set to underperform its major rivals. The forecast deals a blow to Prime Minister Keir Starmer's pledge to make Britain the fastest-growing economy in the G7.

Strategic Data Snapshot

• GDP Growth Forecast: 1.4% (2025) slowing to 1.3% (2026).
• Fiscal Pressure: £66 billion in tax hikes weighing on business confidence.
• Sentiment: 43% of investors favor the US market for 2026.

Growth Forecasts Disappoint

The IMF expects UKGDP to grow by 1.4% in 2025 and slow to 1.3% in 2026. While slightly upgraded from previous estimates, this trajectory leaves the UK lagging behind the US, Canada, and eventually Germany by 2027.

Shadow Chancellor Mel Stride seized on the report, arguing that the economy is “stagnating” and criticizing the government's tax policies. “Business confidence has hit historic lows following £66 billion in tax hikes,” Stride stated, highlighting the domestic structural issues weighing on the currency.

Investor Pessimism

Market sentiment aligns with the IMF's tepid outlook. A survey by CMC Markets revealed that 22% of UK traders hold an overwhelmingly negative view of domestic markets for the coming year. Notably, 43% of investors surveyed view the US as the best-performing market for 2026, signaling potential capital outflows from London to New York.

For GBP/USD, the combination of lackluster growth forecasts and the looming threat of US tariffs creates a bearish fundamental backdrop, limiting the currency's ability to capitalize on any temporary US Dollar weakness.