The Bank of England should cut interest rates two more times this year to boost Britain’s economy, the International Monetary Fund (IMF) has said.

The Fund urged Threadneedle Street to keep lowering borrowing costs from the current level of 4.25pc against the backdrop of an economy that is still reeling from Rachel Reeves’s record tax raid.

It also warned that mounting debts and uncertainty about Donald Trump’s trade policies risked triggering renewed turmoil in financial markets, even as it upgraded its global growth forecasts.

While tariffs are lower than those Mr Trump threatened on “liberation day” on April 2, the IMF said huge uncertainty remained about the future of global trade policy. 

“Risks are tilted to the downside,” it said in an update of its world economic outlook. “Larger fiscal deficits or increased risk aversion could raise long-term interest rates and tighten global financial conditions.

“Combined with fragmentation concerns, this could reignite volatility in financial markets.”

Fears about higher tariffs drove a growth spurt at the start of the year, as companies rushed to send goods to the world’s biggest economy to avoid higher levies.

As a result, UK growth is expected to be slightly higher than previously forecast in 2025, at 1.2pc, while its UK growth forecast for 2026 remains unchanged at 1.4pc.

Ms Reeves, the Chancellor, said the IMF forecasts “show that the UK remains the fastest growing European economy in the G7 despite the global economic challenges we are facing”.

The global economy is expected to grow 3pc this year and 3.1pc in 2026, helped by easing trade tensions.

The IMF said it expected the pace of rate cuts globally to be slower than it did just three months ago, with the Bank of England expected to cut “around twice more this year after pausing to assess incoming data”.

The Bank has already cut rates twice this year to 4.25pc. Investors are only fully pricing in one more reduction to 4pc in August. However, concerns about the health of the economy could prompt more action.

Andrew Bailey warned this month that the tax changes announced by Ms Reeves in her October Budget were damaging hiring and hitting pay packets.

Mr Bailey warned that companies were “adjusting employment and hours, and also having pay rises that are possibly less than they would have been if the NICs change hadn’t happened”.

It comes just days after the IMF warned that richer Britons may be forced to subsidise the NHS as the Chancellor struggles to balance the books.

The Washington-based institution said Ms Reeves would be forced to raise taxes on working people, scrap the pension triple lock or start charging for the NHS.

Mel Stride, the shadow chancellor, said growth was “going nowhere” under Labour, with Ms Reeves expected to raise taxes again by as much as £20bn in the Autumn.

Mr Stride added: “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.”

Elsewhere, the IMF suggested that the US Federal Reserve had more limited scope to reduce borrowing costs, in a move that puts chairman Jerome Powell on a collision course with Mr Trump. The US president has suggested that Mr Powell should be fired for refusing to cut rates.

The IMF said it expects price rises to pick up towards the end of the year.

It added: “Monetary policy rates in the United Kingdom and the United States are expected to decline in the second half of 2025, though at varying speeds.

“Inflation will remain above [the 2pc] target in the US and be more subdued in other large economies.”

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