Key facts
- IMF economist Silvana Tenreyro urged the UK to continue repairing public finances.
- The IMF lifted its UK growth forecast for this year to 1.3%.
- The IMF expects UK GDP growth to slow in 2027 due to high energy and interest rates.
- The IMF recommended temporary and targeted energy support, not broad subsidies.
- Core inflation in the UK is not expected to return to the 2% target until late next year, according to the IMF.
- The UK's fiscal consolidation plan is unique among G7 countries, according to Tenreyro.
The International Monetary Fund's top economist, Silvana Tenreyro, has advised the UK to maintain its current path of fiscal repair, stating that the country "stands out" among G7 nations for its deficit reduction plan. Speaking at the IMF's annual meetings in Bangkok, Tenreyro urged Chancellor John Healey to "stay the course" with consolidation efforts.
The IMF's latest World Economic Outlook also upgraded its growth forecast for the UK this year to 1.3%, a 0.3 percentage point increase from its July estimate. This upgrade comes as UK GDP growth has exceeded expectations in early 2026, partly attributed to the expansion of AI-related businesses. However, the IMF cautioned that growth is expected to slow in 2027, projecting 1.2% for next year and a further decrease in 2027, citing the impact of prolonged high oil prices and rising interest rates on consumption and investment.
In response to the IMF's assessment, Healey acknowledged the global economic challenges posed by conflicts in the Middle East and Europe but highlighted the UK economy's resilience. The IMF also recommended that governments avoid broad energy subsidies, advocating instead for support that is "temporary, targeted and non-distortionary," a point relevant as Healey prepares his budget, which may include energy support measures.
Meanwhile, Bank of England policymaker Megan Greene suggested that current UK interest rates are not sufficiently restrictive, arguing that the IMF's growth upgrade indicates a need for higher rates. The IMF projects that core inflation in the UK will not return to the 2% target until late next year, with average inflation expected to be 3.3% this year and 2.8% in 2027, posing a challenge for the government's promises of cost-of-living relief.