The UK economy is projected to grow by 1.3% in 2026, an increase from the 1% forecast made in July, according to the International Monetary Fund (IMF). However, the IMF warns that higher energy prices and interest rates are expected to impact the economy in 2027. The IMF's report indicates that global economies have shown resilience to the energy price shock linked to the US-Iran conflict, although the economic consequences remain uncertain.
Chancellor John Healey stated that the government aims to provide support for households in the upcoming Budget, with plans to be announced on 28 October. Healey is finalizing tax and spending proposals amid rising government borrowing costs, which are increasing pressure to present credible plans to financial markets.
IMF chief economist Silvana Tenreyro noted that the UK is leading among G7 economies in managing its debt. She highlighted that the UK has begun a consolidation process and should continue on this path. The IMF's report suggests that the UK is on track to stabilize national debt levels and is expected to have the lowest annual borrowing in the G7 by 2031.
While the IMF's forecasts are influential, they are predictions that can change due to global events. The Chancellor's decisions will ultimately be guided by the Office for Budget Responsibility's forecasts rather than the IMF's.
The IMF's latest World Economic Outlook predicts that the UK will have the second-fastest growing economy in the G7 this year, alongside Germany. However, growth is expected to slow to 1.2% in 2027 due to the impact of higher energy prices and long-term interest rates on household spending and business investment. The IMF has also raised its inflation forecast for the UK to an average of 3.3% this year and 2.8% for the next year.
Chancellor Healey acknowledged the impact of conflicts in the Middle East and Europe on the UK economy but emphasized its resilience. Sir Howard Davies, former deputy governor of the Bank of England, commented that while the IMF's growth forecast is relatively positive, it remains cautious for 2027. He described the UK economy as a minor player in the global context, with the IMF focusing more on the US's debt situation, which affects global interest rates.
The Resolution Foundation has urged the Chancellor to address public finances while providing targeted support for those struggling with energy costs. Shadow Chancellor Andrew Griffith warned that increased taxes in the Budget could hinder growth and negatively impact working individuals.