The International Monetary Fund (IMF) has revised its forecast for the UK economy, predicting a 1.3% expansion in 2026. This is an increase from the 1% growth it had projected in July, even as the global economy faces disruptions from the US-Israel war with Iran, which has impacted energy transportation and production.
Despite these global challenges, the IMF noted that the UK is performing better than other major economies in addressing borrowing. By 2031, the UK is projected to have the lowest annual borrowing among the G7 nations. Sir Howard Davies, former deputy governor of the Bank of England, attributed this to the UK government's commitment to tackling the situation, potentially through tax rises, public service cuts, or a combination.
However, the IMF's outlook for 2027 is less optimistic, with a slight downgrade to its growth forecasts for next year. High energy prices and elevated interest rates are expected to affect consumer spending and company investment. The IMF forecasts UK inflation to average 3.3% this year and has raised its estimate for next year to 2.8% from a previous 2.4%.
Tim Armitage, investment strategist at Quilter Cheviot, stated that increasing inflationary pressure on the UK means the Bank of England will likely consider further interest rate rises, with at least one predicted this year and more expected in 2027.