The International Monetary Fund has raised its forecast for UK economic growth this year to 1.3%. It expects higher energy prices and interest rates to slow the economy to 1.2% in 2027, according to its October 2026 World Economic Outlook.
The upgrade from the 1% the fund projected in July leaves the UK as the joint second-fastest growing economy in the G7 alongside Germany, the report said. The 2027 figure is down from a previous forecast of 1.3%.
Consumer price inflation is now expected to average 3.3% in 2026, up from 3.2% forecast earlier, and 2.8% in 2027. That is above the 2.4% the fund had predicted and well above the Bank of England's 2% target. The Office for National Statistics put inflation at 3.1% in August. According to The Independent, the Bank expects price growth to edge past 4% early in 2027, in part because the household energy price cap rises in January.
ET Digital carried the fund's World Economic Outlook presentation, in which it warned that the global economy could soon test the limits of its resilience.
The fund said that if the conflict in the Middle East drags on or widens, food and energy costs could stay high and unstable, holding back growth and straining public finances, The Independent reported. Extreme weather, cyber attacks and strikes on energy infrastructure could make matters worse, the IMF added. Global inflation is forecast at 4.7% this year and 4.1% in 2027, 0.2 percentage points higher than previously expected.
Unemployment in the UK is expected to reach 5.3% this year, below the 5.6% previously forecast. The fund also projects the UK will have the smallest budget deficit in the G7 by 2031, at 1.4% of GDP, compared with 8.4% for the United States.
Chancellor John Healey, who is preparing the Budget for 28 October, said the government would look to "provide some breathing space" for households. "Conflict in the Middle East and Europe is hitting people in the UK and around the world," he said. "But Britain's economy is showing strong international resilience in the face of these challenges."
BBC News reported that economists have put the gap Healey must close, if he is to protect public spending and keep defence pledges, at about £35bn. The Resolution Foundation said the chancellor should pair borrowing reduction with fresh cost of living support for families "struggling to heat their homes". Shadow chancellor Andrew Griffith said that if Healey "reaches for more tax rises" he is "choosing slower growth and working people will pay for it".
Healey is due to meet other finance ministers at the IMF's annual meetings in Bangkok on Tuesday.