IMF lifts UK growth forecast for 2026 but warns energy prices and rates will bite in 2027
The Fund now expects Britain's economy to grow by 1.3 per cent this year, yet it also expects inflation to stay higher for longer, borrowing costs to weigh on spending, and growth to slow next year.
The International Monetary Fund has raised its forecast for British economic growth this year, even as it warned that higher energy prices and a rise in long-term interest rates are likely to weigh on the economy in 2027.
In an update of its World Economic Outlook, published on Tuesday during its annual meetings in Bangkok, the Fund predicted that Britain's economy will grow by 1.3 per cent in 2026. That is up from forecasts of 1.0 per cent in July and 0.8 per cent in April. Growth is then expected to slow to 1.2 per cent in 2027, a downgrade from the 1.3 per cent the Fund had previously pencilled in.
The Fund said higher energy prices and long-term interest rates would weigh on consumption and investment next year. Long-term government borrowing costs in Britain hit their highest since 1998 last week, and the Bank of England expects the global surge in energy prices to push inflation to a peak above 4 per cent early next year.
The UK has started the consolidation process and it’s the country that stands out.Silvana Tenreyro, chief economist of the IMF, quoted by The Times, 13 October 2026
On prices, the Fund expects British inflation to average 3.3 per cent in 2026 and 2.8 per cent in 2027. The 2026 figure would be the joint second-highest rate among G7 countries, and on the Fund's numbers inflation does not return to the Bank of England's 2 per cent target until the end of 2027. It expects unemployment to average 5.3 per cent this year and next, above the 4.9 per cent recorded in the three months to the end of July, although that is a lower forecast than the 5.6 per cent it had previously predicted for this year.
There was better news for the Chancellor on the public finances. The Fund's report noted that Britain is one of the only major economies on course to stabilise its national debt, with borrowing projected to fall by nearly four percentage points of GDP between 2025 and 2031, and Britain forecast to have the lowest deficit in the G7 by 2031. Silvana Tenreyro, the Fund's chief economist, said the UK had started its consolidation process and should stick with it.
John Healey, who delivers his first Budget on 28 October, said Britain's economy was showing strong international resilience, pointing to the forecast that the UK will be the joint second fastest-growing G7 nation in 2026 and have the lowest deficit in the G7 by 2031. He said he would meet fellow finance ministers in Bangkok this week to discuss limiting the impact of conflicts on people and businesses while maintaining strong fiscal discipline, and the BBC reported that he said the Government would look to provide some breathing space for households in the Budget.
The Opposition response was sharper. Andrew Griffith, the shadow chancellor, warned that if Healey reached for further tax rises instead of tackling welfare spending and energy supply, he would be choosing slower growth and working people would pay the price.
The Fund's global outlook struck a similar balance: it said technology investment had supported growth in many economies this year, but warned of risks from rising public debt, and it urged central banks to move quickly to raise interest rates where public confidence in their inflation targets had weakened. For Healey, the upgrade is welcome cover two weeks before the Budget. The warning underneath it, that energy and borrowing costs will squeeze households through 2027, is the part the Budget has to answer.
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