UK growth forecast upgraded but higher energy prices to hit economy next year
The prediction from the IMF comes as final preparations are being made for the first Budget under Prime Minister Andy Burnham.
The IMF has upgraded its forecast for UK economic growth in 2026 to 1.3%, up from its July prediction of 1%, according to its latest World Economic Outlook. The report, closely watched by the government, also projects growth will slow to 1.2% in 2027 as higher energy prices and long-term interest rates weigh on household spending and business investment.
The IMF said economies worldwide have proved resilient to the energy price shock caused by the US-Iran war, but warned the economic fallout from the conflict remains "highly uncertain."
Budget preparations and borrowing
Chancellor John Healey is making final preparations for the Budget on 28 October. He said the government would look to "provide some breathing space" for households. Government borrowing costs have surged, pressuring the chancellor to make his plans credible to financial markets.
The IMF said the UK is one of the only major economies on course to stabilise national debt, and is projected to have the lowest annual borrowing in the G7 in 2031. IMF chief economist Silvana Tenreyro told BBC News on Tuesday that the UK's debt management process is leading the major G7 economies.
As you know, the UK has already started the consolidation process and it is the country that basically stands out, along with India
— Silvana Tenreyro
Reaction and forecasts
Sir Howard Davies, former deputy governor of the Bank of England, told the BBC the IMF's growth forecast was "better than it might have been," but said 2027 remained "more pessimistic." He said the UK was "a bit of a sideshow" in the global economy, with the IMF more focused on US debt, which he said is putting pressure on interest rates worldwide.
The IMF expects UK inflation to average 3.3% this year and has raised its forecast for next year to 2.8%. Economists have suggested Healey may need to find £35bn to avoid public spending cuts while meeting defence promises. The Resolution Foundation called on the chancellor to "make repairs" to public finances, while Conservative shadow chancellor Andrew Griffith said more tax rises would mean slower growth.
