The IMF has raised its 2026 growth forecast for the UK but expects a modest slowdown in 2027 as higher energy prices take effect. The upgrade arrives weeks before Chancellor John Healey's first budget.
The International Monetary Fund predicts UK GDP growth of 1.3% this year, up 0.3 percentage points from its July update. The upgrade is welcome news for Healey, who will attend the IMF's annual meetings in Bangkok for the first time later this week.
UK GDP has been stronger than expected in early 2026, at 0.6% in the first quarter and 0.5% in the second. However, the fund also cut its 2027 forecast to 1.2%, from 1.3%.
Energy prices and rates weigh on 2027
The IMF warned that high oil prices and rising interest rates meant growth was likely to edge down in 2027. It also singled out the UK as among the countries where core inflation is not expected to return to the 2% target until late next year.
Average inflation in the UK is expected to be 3.3% this year and 2.8% in 2027. That poses a challenge for Healey and Prime Minister Andy Burnham, who are promising voters a breathing space from rising costs.
Gilts rally ahead of the 28 October budget
UK government bonds rallied after the announcement. Yields on the 10-year gilt fell by about 5 basis points, and yields on the 5-year fell by 4 basis points.
Healey's first budget is due on 28 October. The Institute for Fiscal Studies warned this week that the budget would be a work of fiction unless he explains how he would deal with what it said were £35bn of future spending pressures.
IMF economic counsellor Silvana Tenreyro said the UK has already started a consolidation process. According to The Guardian: "The message for the UK is simply, stay the course" she said.
Source: The Guardian
Trading involves risk.
Risk Disclaimer
