Three things we've learnt about the UK economy from the IMF

Key points

• The IMF upgraded its UK growth forecast for 2026 to 1.3% from 1% in July, but expects a slowdown in 2027.
• The IMF said the UK stands out along with India for its handling of government borrowing and is projected to have the lowest annual borrowing in the G7 by 2031.
• The IMF raised its UK inflation estimate for next year to 2.8% from 2.4% and expects average inflation of 3.3% this year.

The International Monetary Fund's latest report offers three key takeaways about the UK economy. The IMF, which aims to keep the global economy stable, publishes twice-yearly forecasts that are among the most authoritative assessments of global conditions, though the article notes they can be wrong and should not be treated as gospel.

The report comes as the global economy has been shaken by the US-Israel war with Iran. Energy transportation and production in the Middle East have been severely disrupted, pushing oil prices up and inflation higher. Central banks, including the Bank of England, are expected to raise interest rates in the coming months to slow price rises.

UK growth outlook

Despite the disruption, the IMF said the global economy is doing much better than expected, partly due to a surge in investment into AI. For the UK, it now expects growth of 1.3% in 2026, up from 1% predicted in July, before slowing in 2027. That would make the UK, along with Germany, the second-fastest growing economy in the G7 this year.

Sir Howard Davies, former deputy governor of the Bank of England, said the UK is still growing slowly. "We're still growing slowly. It's almost like saying we're winning a slow bicycle race here because other people are going backwards a bit more rapidly than we are."

So, we [the UK] are not great students, but we look somewhat better than some of the others we are sharing the class with.

— Sir Howard Davies

Borrowing and inflation

Concern has grown about how much countries are borrowing, but the IMF said the UK is doing better than all other major economies on this. It said the UK "basically stands out, along with India" and projects the UK will have the lowest annual borrowing in the G7 by 2031. Sir Howard Davies attributed this largely to the UK having a majority government committed to tackling the issue, through tax rises, public service cuts, or both. He said the US has said little about reducing its deficit, while France and Germany lack majority governments.

The IMF also warned that high energy prices and elevated interest rates will affect consumer spending and business investment next year. It forecasts UK inflation to average 3.3% this year and has raised its estimate for next year to 2.8% from 2.4%. Tim Armitage, investment strategist at Quilter Cheviot, said the Bank of England will need to consider further rate rises, with at least one predicted this year and more expected next year.