The International Monetary Fund upgraded its UK economic growth forecast to 1.3% for 2026, up from 1% predicted in July, but warned that higher energy prices and interest rates will slow expansion to 1.2% in 2027.
The IMF's World Economic Outlook, released Tuesday, cited global economic resilience to the energy shock caused by the US-Iran war, though the organisation cautioned that the conflict's economic fallout remains "highly uncertain". The UK is now expected to have the second-fastest growing economy in the G7, alongside Germany.
IMF Chief Economist Silvana Tenreyro told BBC News that the UK "stands out" among major economies in managing its debt. The organisation projects the UK will reduce annual borrowing by nearly four percentage points of GDP between 2025 and 2031, significantly more than other G7 nations, many of which are increasing their deficits. The UK is forecast to have the lowest annual borrowing in the G7 by 2031 and the longest debt maturity, locking in lower rates for longer.
Chancellor John Healey said the government would seek to "provide some breathing space" for households in the Budget announcement scheduled for 28 October. Healey faces pressure to ensure his spending and tax plans are credible to financial markets, upon which the UK relies for borrowing.
The IMF projects inflation will average 3.3% this year and remain above the Bank of England's 2% target at 2.8% in 2027. The Bank of England itself has predicted inflation could exceed 4% at the start of next year, making interest rate rises more likely.
The Resolution Foundation called on Healey to make "repairs" to public finances while providing targeted support for households struggling with heating costs. Conservative shadow chancellor Andrew Griffith warned that additional tax rises would "choose slower growth" and harm working people.
Healey is expected to meet other finance ministers at the IMF's annual meeting in Bangkok on Tuesday to discuss limiting economic damage from Middle East and European conflicts.