IMF raises UK growth forecast for 2026 but warns of pressure next year
The IMF has raised its UK growth forecast for 2026 to 1.3%, from 1% in July, but slightly lowered its outlook for next year. Higher energy prices and interest rates are expected to weigh on spending and investment, while inflation remains elevated.
bbc.comThree things we've learnt about the UK economy from the IMF
myjoyonline.comThree things we’ve learnt about the UK economy from the IMF
Growth forecast improves
The International Monetary Fund expects the UK economy to grow by 1.3% in 2026, up from its July forecast of 1%, before slowing in 2027. Its projections put the UK alongside Germany as the second-fastest-growing G7 economy this year.
The IMF said the global economy was performing better than expected despite disruption from the US-Israel war with Iran, partly because of a surge in investment in artificial intelligence.
Inflation and interest-rate risks
The IMF slightly downgraded its UK growth forecast for next year, saying high energy prices and elevated interest rates would weigh on consumer spending and business investment. It forecasts UK inflation will average 3.3% this year and 2.8% next year, raising the latter estimate from 2.4%.
Disruption to energy production and transportation in the Middle East has pushed up oil prices and inflation. Tim Armitage, an investment strategist at Quilter Cheviot, said at least one Bank of England interest-rate rise was expected this year, with more expected next year.
Borrowing outlook stands out
The IMF said the UK “basically stands out, along with India” in addressing government borrowing. It projects that the UK will have the lowest annual borrowing among G7 countries by 2031.
Sir Howard Davies, former deputy governor of the Bank of England, attributed that outlook largely to a government majority committed to tackling borrowing through tax rises, public-service cuts or both. He also cautioned against overstating the UK's relative growth performance: “We're still growing slowly.”
