The IMF said the UK economy would expand by 1.3% in 2026, up from its July prediction of 1%. The upgrade reflects the global economy's resilience following disruptions to Middle Eastern energy supplies from the US-Israel war with Iran, which pushed up oil prices and inflation.
A growing economy typically means companies invest more and hire more people, while consumers have greater spending power. The IMF forecasts UK inflation will average 3.3% this year, then rise to 2.8% in 2027, prompting the Bank of England to consider further interest rate increases. Higher energy prices and elevated borrowing costs are expected to dampen consumer spending and business investment next year.
The UK stands out among major economies for addressing its government borrowing, the IMF said. By 2031, Britain is projected to have the lowest annual borrowing of the G7 group. Sir Howard Davies, former deputy governor of the Bank of England, attributed this partly to the UK government's majority and commitment to tackling the deficit through tax rises, public service cuts, or both.
The UK is expected to have the second-fastest growing economy in the G7 this year alongside Germany, though growth remains sluggish by historical standards.