The International Monetary Fund upgraded its UK growth forecast to 1.3% for 2026, up from 1% predicted in July, citing global economic resilience to the US-Iran conflict. However, the IMF projects growth will slow to 1.2% in 2027 as higher energy prices and interest rates weigh on household spending and business investment.
The forecast suggests UK inflation will average 3.3% this year and remain above the Bank of England's 2% target at 2.8% in 2027. The Bank of England has separately predicted inflation could exceed 4% in early 2027, making interest rate increases more likely.
IMF Chief Economist Silvana Tenreyro told BBC News that the UK stands out among G7 economies for managing its debt. The IMF projects the UK will reduce annual borrowing by nearly four percentage points of GDP between 2025 and 2031, more than any other major economy in the group. The UK is on course to have the lowest annual borrowing in the G7 by 2031 and the longest debt maturity, locking in lower interest rates for longer.
Chancellor John Healey said the government would seek to "provide some breathing space" for households in the Budget, due 28 October. The think tank Resolution Foundation called on Healey to pair continued debt reduction with targeted cost-of-living support, saying families face "a difficult winter ahead." Healey acknowledged that Middle East and European wars were "hitting people in the UK and around the world" but stated Britain's economy shows "strong international resilience."
Conservative shadow chancellor Andrew Griffith warned that additional tax rises would result in "slower growth and working people will pay for it."
The IMF cautioned that economic fallout from the US-Iran conflict remains "highly uncertain" despite economies proving resilient to the energy shock so far.