UK growth upgraded but energy prices and rates to bite in 2027
The IMF report comes as final preparations are being made to the first Budget under Prime Minister Andy Burham.
By BBC News
The UK economy is expected to grow faster than previously forecast this year, but higher energy prices and long-term interest rates are set to slow growth in 2027.
The International Monetary Fund has raised its forecast for UK growth in 2026 from 1% to 1.3%. It now expects the economy to expand by 1.2% next year, down from its previous estimate of 1.3%.
The IMF said higher energy prices and borrowing costs would weigh on household spending and business investment. Its latest World Economic Outlook also warned that the economic impact of the conflict in the Middle East remained “highly uncertain”.
Inflation is expected to average 3.3% in the UK this year, according to the IMF, before easing to 2.8% in 2027. That would still leave inflation above the Bank of England’s 2% target.
The Bank has warned that inflation could rise to slightly above 4% early next year, partly because of a further increase in the household energy price cap in January. Higher inflation could increase pressure for interest rates to remain high or rise.
The upgraded growth forecast means the UK is expected to record the joint second-fastest expansion among G7 economies in 2026, alongside Germany, the report said.
The IMF’s report comes as Chancellor John Healey makes final preparations for the government’s Budget, due to be announced on 28 October.
The Budget will be the first under Prime Minister Andy Burnham’s government and is expected to set out its tax and spending plans against a weaker growth outlook for the following year.
The IMF said a prolonged stalemate or further escalation in the Middle East could keep energy and food prices elevated and volatile, while putting additional pressure on economic growth and government finances.