The UK economy is forecast to grow by more than previously expected this year before higher energy prices and interest rates hit the economy in 2027, the International Monetary Fund (IMF) said.
The organisation’s latest report, which is closely watched by the government, said the UK economy would 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”.
Chancellor John Healey said the government would look to “provide some breathing space” for households in the Budget.
Healey is making the final preparations to Andy Burnham’s new-look government’s tax and spending plans, which will be announced on 28 October.
Government borrowing costs have surged, placing pressure on the chancellor to ensure his plans are credible in the eyes of financial markets, which the UK relies on to borrow money.
But IMF chief economist Silvana Tenreyro told BBC News on Tuesday that the UK’s process of managing its debts is now leading the major G7 economies.
“As you know, the UK has already started the consolidation process and it is the country that basically stands out, along with India”, she said.
The organisation said the UK is one of the only major economies on course to stabilise levels of national debt. The UK is also projected to have the lowest annual borrowing in the G7 in 2031.
Asked if the UK was one of the countries the IMF was telling to reduce borrowing, Tenreyro said that the country had begun the process already and should “stay the course”.
The head of the IMF has previously called on the world’s advanced economies to cut borrowing and reduce debt levels.
While the IMF’s forecasts are closely watched, the figures are only a prediction, a best estimate, of what will happen in the future. Forecasts often turn out to be incorrect due to world events.
Also, the chancellor’s spending decisions at the Budget will be based on predictions from the UK’s official forecaster, the Office for Budget Responsibility, not the IMF.
