IMF Raises UK Growth Forecast, Warns of 2027 Energy Hit

LONDON, United Kingdom — The International Monetary Fund raised its growth forecast for the United Kingdom this year but warned that higher energy prices and interest rates will slow the economy in 2027, according to the fund's latest World Economic Outlook, reported by BBC News.

The IMF said the UK economy is now expected to expand 1.3% in 2026, up from the 1% it projected in July. The fund attributed part of the upgrade to global resilience against the energy price shock caused by the US-Iran war, though it cautioned that the fallout from the conflict "remained highly uncertain."

What Does the IMF Forecast for UK Growth in 2026 and 2027?

According to the IMF's report, the UK is projected to post the second-fastest growth rate in the G7 this year, tied with Germany. Growth is forecast to slow to 1.2% in 2027 as energy costs and borrowing costs weigh on household spending and business investment, the fund said.

Inflation is expected to average 3.3% this year, with the IMF raising its 2027 inflation forecast to 2.8%, up from its earlier estimate, per the same report.

Why Will Energy Prices Slow the Economy Next Year?

The IMF's report ties the 2027 slowdown directly to the lingering effects of the US-Iran war on energy markets and to elevated long-term interest rates, both of which it said would curb household spending and business investment. The fund said the global economy was "proving resilient" overall, helped in part by an investment surge tied to artificial intelligence, even as the war in the Middle East and the conflict in Europe continued to strain supply chains and energy costs.

What Does the IMF Say About UK Government Borrowing?

IMF chief economist Silvana Tenreyro told BBC News that the UK's debt management now leads other major economies in the Group of Seven. "As you know, the UK has already started the consolidation process and it is the country that basically stands out, along with India," Tenreyro said. The fund's report identified the UK as one of the few major economies on course to stabilize its national debt levels, and projected it would have the lowest annual borrowing among G7 nations by 2031.

Asked whether the UK was among the countries the IMF was pressing to reduce borrowing, Tenreyro said the country had already begun that process and should "stay the course." The IMF's managing director has separately called on the world's advanced economies to cut borrowing and lower debt levels, according to the BBC report.

What Is Chancellor John Healey Planning for the Budget?

Chancellor John Healey is finalizing tax and spending plans for the first Budget under Prime Minister Andy Burnham's government, set to be announced October 28, according to BBC News. Healey said the government would look to "provide some breathing space" for households in the Budget. He acknowledged that wars in the Middle East and Europe were "hitting people in the UK and around the world," while adding that "Britain's economy is showing strong" resilience, per his remarks cited by the BBC.

Government borrowing costs have risen, the report noted, increasing pressure on Healey to present a Budget that financial markets regard as credible, given the UK's reliance on those markets to finance its debt.

The BBC noted that while the IMF's forecasts are closely watched, they remain predictions that can be overtaken by world events — and that Healey's actual Budget decisions will rest on forecasts from the UK's official forecaster, the Office for Budget Responsibility, rather than the IMF's figures.

IMF Forecast at a Glance

• UK GDP growth: 1.3% in 2026 (up from a July estimate of 1%), slowing to 1.2% in 2027
• UK inflation: averaging 3.3% in 2026, with the 2027 forecast raised to 2.8%
• The UK is projected to post the second-fastest G7 growth rate in 2026, tied with Germany, and the lowest annual G7 borrowing by 2031

What to Watch Before the October 28 Budget

• Whether Healey's tax and spending plans match the OBR's own growth and inflation forecasts, which will carry more weight than the IMF's figures
• Market reaction to UK borrowing costs in the weeks before the Budget, given the pressure described in the BBC report
• Any further IMF commentary on energy-driven inflation risks tied to the US-Iran war and the conflict in Europe
• Whether Burnham's government frames Budget measures around the "breathing space" for households that Healey referenced

The full IMF analysis and Healey's comments were first reported by BBC News.