UK Growth Upgraded but Energy Prices and Rates to Bite in 2027
The UK economy is forecast to grow by more than previously expected this year before higher energy prices and interest rates hit growth in 2027, according to the International Monetary Fund (IMF).
The organization's latest report, which is closely watched by the government, predicts the UK economy will expand by 1.3% in 2026, up from the 1% it predicted in July, before slowing in 2027.
Economies across the world have proved more resilient to the energy price shock caused by the US-Iran war, the IMF said, but it warned the economic fallout from the conflict remained "highly uncertain".
Key Takeaways:
- Stronger Growth in 2026: The UK economy is expected to grow by 1.3% in 2026, up from previous estimates.
- Slowing Growth in 2027: Growth is projected to slow to 1.2% in 2027 due to higher energy prices and interest rates.
- Lowest Borrowing in G7: The UK is projected to have the lowest annual borrowing rate among G7 countries over the next five years.
- Reduced Deficit: The UK is estimated to have the lowest annual deficit by 2031, suggesting planned public spending cuts.
Chancellor John Healey plans to offer "some breathing space" for households in the upcoming Budget, while preparing tax and spending plans to be announced on October 28.
Healy acknowledged the impact of Middle East and European wars on UK residents but emphasized the "strong international resilience" of the UK economy.
"Britain's economy is showing strong international resilience," Healey stated.
The IMF's positive revision of UK growth forecasts contrasts with previous downgrades due to the US-Iran conflict, positioning the UK as the second fastest-growing G7 economy alongside Germany.