IMF lifts UK 2026 growth forecast to 1.3%, flags 2027 slowdown

IMF lifts UK 2026 growth forecast to 1.3%

The IMF raised its 2026 UK growth forecast to 1.3% on Tuesday, up from 1% predicted in July. The upgrade puts Britain alongside Germany as the second-fastest growing G7 economy this year.

The fund published the forecast alongside finance-ministry meetings in Bangkok, Thailand. Economies across the world have absorbed the US-Iran war energy shock better than expected, the IMF said in its World Economic Outlook, though it classed the broader economic fallout as "highly uncertain".

The IMF has called on advanced economies to cut borrowing and reduce debt levels. Its latest UK numbers now point in that direction.

What does 2027 look like?

Growth slows to a projected 1.2% next year. The mechanism: higher energy prices and long-term interest rates drag on household spending and business investment.

Inflation averages 3.3% in 2026 and stays at 2.8% in 2027. Both sit above the Bank of England's 2% target. The Bank itself has warned inflation could rise above 4% early next year, which lifts the odds of further rate rises as fiscal space narrows.

Households continue to feel the pinch of rising prices through winter. The Resolution Foundation flagged that support should target those "struggling to heat their homes".

How tight is the Budget arithmetic?

Chancellor John Healey will deliver the Budget on 28 October. Government borrowing costs have surged in recent weeks. Markets now demand credible plans from the Treasury before extending more credit.

The IMF projects the UK will post the lowest annual deficit of any G7 country by 2031. That implies real-terms public-spending cuts in coming years. Economists have told the Treasury that Healey must find £35bn of headroom to avoid cuts to unprotected departments while honouring defence pledges.

Healey said the government would look to "provide some breathing space" for households. He added that "Britain's economy is showing strong international resilience". He acknowledged wars in the Middle East and Europe were "hitting people in the UK and around the world".

Who is pushing back?

Andrew Griffith, the Conservative shadow chancellor, said if Healey "reaches for more tax rises" in his Budget, "he is choosing slower growth and working people will pay for it".

The Resolution Foundation, a left-leaning think tank, called on the chancellor to "make repairs" to the public finances. It added: "The challenge of continuing to bring down borrowing must be paired with the pressing need for fresh cost of living support to help families facing a difficult winter ahead."

Prime Minister Andy Burnham has pledged "good growth in every postcode" through regional devolution. His strategy has drawn criticism from inside his own party.

What happens next?

Healey meets other finance ministers at the IMF's annual meeting in Bangkok on Tuesday. They will discuss ways to limit the economic spillover from the Middle East and European conflicts.

The IMF said the global economy has shown "a remarkable capacity to absorb shocks" since the Covid pandemic and Russia's 2022 invasion of Ukraine. Britain's near-term numbers flatter that pattern. Its 2027 outlook hinges on whether energy markets stabilise before households and businesses finish absorbing the rate cycle.