Key facts
- The UK economy is forecast to grow by 1.3% in 2026, an increase from the IMF's previous prediction of 1%.
- Growth is expected to slow to 1.2% in 2027.
- Higher energy prices and interest rates are expected to weigh on household spending and business investment in 2027.
- The IMF projects the UK will have the lowest annual rate of borrowing among G7 countries over the next five years.
- UK inflation is expected to average 3.3% this year and remain above the Bank of England's 2% target at 2.8% in 2027.
The UK economy is expected to grow by 1.3% in 2026, an upward revision from the International Monetary Fund's (IMF) previous forecast of 1%. However, the IMF warned that growth is likely to slow to 1.2% in 2027 as higher energy prices and interest rates dampen household spending and business investment.
The IMF's latest report noted that global economies have shown resilience to energy price shocks, though the economic fallout from ongoing conflicts, including the US-Iran war, remains uncertain. The organization projects that the UK will experience a sharp fall in borrowing and achieve the lowest annual borrowing rate among G7 countries over the next five years, suggesting future public spending cuts.
Chancellor John Healey is finalizing the new government's tax and spending plans, due on October 28. He faces pressure to ensure fiscal credibility amid surging government borrowing costs. The IMF's forecast implies the UK will have the second-fastest growing economy in the G7, alongside Germany, following the reversal of earlier downgrades.
Healey acknowledged the impact of Middle East and European conflicts on people in the UK but highlighted the nation's strong international economic resilience. The Resolution Foundation think tank urged the chancellor to "make repairs" to public finances while providing targeted cost-of-living support for struggling households. Conservative shadow chancellor Andrew Griffith criticized potential tax rises, arguing they would hinder growth.