Key facts
- The IMF has upgraded its UK GDP growth forecast for the current year to 1%, an increase of 0.2 percentage points from its April projection.
- This upgrade positions the UK as the third fastest-growing economy in the G7 for 2026, behind the US and Canada.
- The IMF's forecast for global economic growth is unchanged at 3% for this year and 3.4% for next.
- UK inflation remained unchanged in May, leading financial markets to price in only one further interest rate rise by the Bank of England.
- The IMF highlighted that AI advancements have helped offset the economic impact of higher energy costs stemming from the Middle East conflict.
The International Monetary Fund (IMF) has revised its economic outlook, upgrading the United Kingdom's growth forecast for the current year to 1%, a 0.2 percentage point increase from its April projection. This adjustment suggests the UK economy may be less impacted by the Middle East conflict than initially feared. The IMF's report, finalized before recent escalations, also noted that advancements in artificial intelligence (AI) are helping to offset the economic effects of higher energy prices resulting from the war.
Globally, the IMF's growth forecast remains largely unchanged, with projections of 3% for this year and 3.4% for next. The UK is anticipated to be the third fastest-growing economy within the G7 in 2026, trailing the United States and Canada. Official data indicated that UK inflation held steady in May, leading financial markets to anticipate only a single interest rate increase from the Bank of England by next spring. This contrasts with earlier fears of multiple hikes due to soaring prices.
However, the IMF also issued warnings about potential downside risks. These include the possibility of renewed conflict in the Middle East, which could lead to further commodity price increases, volatility, supply shortages, and exchange rate pressures. Additionally, the IMF highlighted the risk of a correction in technology-driven market expectations, which could negatively impact financial markets, global trade, and lead to sharp adjustments in frothy equity valuations, particularly in AI-focused economies.