The International Monetary Fund (IMF) has upgraded its growth forecast for the UK economy, projecting a 1.3% expansion in 2026, up from the 1% predicted in July, before growth slows to 1.2% in 2027 due to higher energy prices and interest rates. The IMF's report noted that global economies have shown resilience to the energy price shock caused by the US-Iran war, but cautioned that the economic fallout remains uncertain.
Chancellor John Healey emphasized the need to provide households with 'some breathing space' in the upcoming Budget, set for 28 October. The government faces pressure to ensure its tax and spending plans are credible amid surging borrowing costs. The IMF forecast suggests the UK will have the lowest annual deficit among G7 countries by 2031, indicating potential cuts in public spending.
The UK is now expected to have the second-fastest growing economy in the G7, alongside Germany, despite the anticipated slowdown in 2027. Inflation is projected to average 3.3% this year and remain above the Bank of England's 2% target in 2027 at 2.8%, with the Bank predicting inflation could rise above 4% early next year, increasing the likelihood of higher interest rates.
The Resolution Foundation urged the chancellor to address public finances while providing targeted support for households struggling with rising living costs. Conservative shadow chancellor Andrew Griffith warned against tax rises, arguing they would slow growth and burden working people. The IMF's annual meeting in Bangkok will discuss mitigating the economic impact of ongoing conflicts in the Middle East and Europe.