IMF sees higher energy prices, rates hitting UK growth

Higher energy prices and a rise in long-term interest rates are likely to weigh on British economic growth next year, the International Monetary Fund warned on Tuesday. The IMF predicts Britain's economy will grow 1.3% this year, up from predictions of 1.0% in July and 0.8% in April, before slowing to 1.2% growth in 2027, putting Britain in the middle of the pack among major advanced economies.

"Higher energy prices and long-term interest rates (will) ⁠weigh on consumption and investment," the IMF said in its section on Britain in an update of its World Economic Outlook. The global outlook sees AI supporting growth but warns of risks from rising public debt.

Long-term government borrowing costs in Britain hit their highest since 1998 last week, while the Bank of England predicts the global surge in energy prices will push inflation to a peak above 4% early next year. The IMF forecasts British inflation will average 3.3% in 2026 and 2.8% in 2027, close to its predictions for the euro zone and the United States. British unemployment is likely to rise to average 5.3% this year and next, the IMF said, up from 4.9% in the three months to the end of July.

The IMF also stated that central banks globally needed to be quicker to raise interest rates where public confidence in their inflation targets had weakened, and resist any pressure to tolerate above-target inflation or excessive borrowing. Unlike the European Central Bank or the US Federal Reserve, the BoE has not raised rates since the outbreak of the US-Iran war in February.