What changed
The International Monetary Fund raised its forecast for UK economic growth in 2026 to 1.3%, up from 1%, but downgraded its outlook for 2027. It also expects UK inflation to average 3.3% this year and 2.8% next year, higher than its previous 2.4% estimate.
The IMF says the UK is weathering the economic shock from the war involving the US, Israel and Iran better than expected so far. It also projects that the UK will have the lowest annual borrowing in the G7 by 2031 and the group’s second-fastest growth in 2026, alongside Germany.
Why it matters
The headline is encouraging, but the improvement is narrow. A 1.3% growth rate means the economy is expanding, yet the forecast still describes slow progress. The UK may look stronger because other major economies are performing worse, not because growth has suddenly become powerful.
The borrowing forecast gives the government more room to claim progress on the public finances. But that improvement is expected to come through tax rises, cuts to public services, or a mixture of both. The fiscal numbers may improve while pressure on households and public services continues.
The harder part comes next year. Higher energy prices and elevated interest rates are expected to weigh on household spending and company investment. Further Bank of England rate rises are also expected, which would make borrowing more expensive just as inflation remains above the bank’s target.
So the useful reading is not “the UK is doing well.” It is that the economy has absorbed this shock better than expected, while the cost of doing so may become clearer in 2027.
Comments
No comments yet.