The International Monetary Fund said the UK economy would expand by 1.3% in 2026, up from its July prediction of 1%. However, the organisation forecast growth would slow to 1.2% in 2027 as higher energy prices and long-term interest rates weigh on household spending and business investment. The IMF noted that economies worldwide have proved more resilient to energy price shocks caused by the US-Iran war, though it warned the economic impact of the conflict remained uncertain.
For British households and businesses, the forecast suggests mixed prospects. Inflation is expected to average 3.3% this year and remain above the Bank of England's 2% target in 2027 at 2.8%. The Bank itself has predicted inflation could rise above 4% at the start of next year, increasing the likelihood of interest rate rises. This means borrowing costs for mortgages and business loans will probably increase.
Chancellor John Healey said the government would look to provide some relief for households in the Budget announcement scheduled for 28 October. The IMF projected that the UK would have the lowest annual borrowing rate of all G7 nations over the next five years, suggesting public spending cuts may come. The think tank Resolution Foundation called on Healey to balance bringing down borrowing with targeted support for families facing winter cost pressures.