The International Monetary Fund (IMF) has urged UK Chancellor John Healey to “stay the course” and continue his efforts to repair the country’s public finances, following an upgraded growth forecast for Britain. Silvana Tenreyro, the IMF’s economic counsellor, highlighted that the UK is unique among G7 nations for having a clear plan to reduce its deficit. Speaking at the launch of the IMF’s World Economic Outlook in Bangkok, Tenreyro commended the UK’s early consolidation process but cautioned against broad energy subsidies, recommending any support should be temporary, targeted, and non-distortionary.
The IMF raised its GDP growth forecast for the UK this year to 1.3%, up from 1.0% in July, citing stronger-than-expected expansion in early 2026 driven by AI-related businesses. However, it anticipates a modest slowdown to 1.2% in 2027 due to higher energy prices and long-term interest rates. Healey, who is set to present his first budget on 28 October, emphasized Britain’s economic resilience despite global conflicts, though he faces pressure to announce energy support measures ahead of rising bills in January.
Markets have adjusted expectations for future inflation and interest rates following renewed Middle East tensions, with the Bank of England widely expected to raise rates in November. Megan Greene, a BoE policymaker, argued that the IMF’s growth upgrade supports higher UK interest rates, citing recent labor market data. The IMF also noted that core inflation in the UK is not expected to return to the 2% target until late 2027, averaging 3.3% this year and 2.8% in 2027, posing a challenge for Healey and Prime Minister Andy Burnham.
Healey’s budget is expected to focus on devolution of tax revenues to mayoralties and measures to ease household energy costs. The Institute for Fiscal Studies (IFS) warned that the budget would lack credibility unless Healey addresses £35bn in future spending pressures, describing it as a “work of fiction” otherwise. The chancellor will spend less than a day in Bangkok before finalizing his budget plans.