IMF Upgrades UK Growth Forecast as Energy Costs Weigh on 2027

What changed

The IMF upgraded its forecast for UK economic growth in 2026 to 1.3%, from 1% in July. It expects growth to slow to 1.2% in 2027 as higher energy prices and long-term interest rates squeeze household spending and business investment.

Inflation is forecast to average 3.3% this year and 2.8% next year. The government’s Budget is due on 28 October, with Chancellor John Healey promising to provide households with “some breathing space.”

Why it matters

The upgrade is welcome, but it is hardly a victory lap. The UK is growing more quickly than expected this year largely because other major economies are weakening faster. Sir Howard Davies described it as winning a “slow bicycle race”: progress, but at a pace that leaves little room for mistakes.

For households, the more important number is next year’s forecast. Higher energy costs and borrowing rates could leave less money for spending and make investment harder for businesses. That would weaken the economy just as the government is trying to present a credible plan for managing its finances.

There is one piece of reassurance for policymakers. The IMF says the UK is on course to stabilise its national debt and projects that it will have the lowest annual borrowing in the G7 in 2031. That gives the government some financial credibility, but it also supports the IMF’s message to “stay the course” on debt reduction.

The outlook remains uncertain because energy prices, interest rates and government decisions can all change the forecast. The Office for Budget Responsibility, rather than the IMF, will provide the projections underpinning the Budget.