IMF upgrades UK 2026 growth forecast to 1.3%

The International Monetary Fund has upgraded its UK GDP growth forecast for 2026 to 1.3 per cent. This marks a 0.3 percentage point increase from its July estimate of 1.0 per cent. The UK economy grew by 0.6 per cent in the first quarter of 2026 and 0.5 per cent in the second quarter.

The IMF simultaneously cut its growth projection for 2027 to 1.2 per cent from 1.3 per cent. It expects a modest slowdown due to higher energy prices and the lagged effects of monetary tightening. Inflation is forecast to average 3.3 per cent in 2026 and 2.8 per cent in 2027, with core inflation not returning to the 2 per cent target until late 2027.

This revised outlook places the UK in the middle of the G7 pack for 2026 growth. The forecast compares with other major economies as follows:

Tenreyro backs UK fiscal path

IMF Economic Counsellor Silvana Tenreyro endorsed the UK's deficit-narrowing plan. Tenreyro, a former member of the Bank of England's Monetary Policy Committee, spoke at the launch of the IMF's World Economic Outlook in Bangkok. She stated the UK stands out among G7 nations for having a consolidation plan in place.

"The UK has already started a consolidation process," Tenreyro said. "The message for the UK is simply, stay the course."

Healey faces budget and energy pressures

Chancellor John Healey is under significant pressure to announce a generous energy support package before an expected sharp rise in bills in January. Healey, who succeeded Rachel Reeves and was appointed on 20 July 2026, must deliver his inaugural budget on Wednesday, 28 October. He will spend little more than 24 hours in Bangkok before returning to finalise the budget.

Healey plans to devolve more tax revenues to mayoralties and help households with energy bills. He acknowledged external shocks from conflicts in the Middle East and Europe while highlighting the UK's economic resilience. The IMF has advised that any state intervention in energy markets should be strictly temporary, targeted, and non-distortionary.

Broader economic and policy context

The IMF warned the global economy could soon test the limits of resilience. It highlighted the need for UK structural reforms to address low business investment, skills shortages, and planning system bottlenecks. Domestically, the Bank of England's nine-member Monetary Policy Committee is widely expected to raise the policy rate at its November meeting.

Bank of England policymaker Megan Greene argued the IMF's growth upgrade proves UK interest rates should be higher. Greene stated interest rates are currently not very restrictive and labour market slack may have peaked. Mortgage rates are rising due to higher bank funding costs, with markets revising up inflation and interest rate expectations since the Middle East conflict re-escalated in summer.

Fiscal pressures remain intense. The Institute for Fiscal Studies warned the budget would be a work of fiction without an explanation for £35 billion of future spending pressures. It previously warned further tax rises may be unavoidable to fund deteriorating public services. A defence spending target of 3 per cent of GDP is to be delayed until next year's spending review.

Healey will deliver his inaugural budget on Wednesday, 28 October 2026.