The International Monetary Fund (IMF) has raised its growth forecast for the UK economy in 2026 to 1.3%, up 0.3 percentage points from its July projection, while urging the government to continue its efforts to strengthen public finances. Silvana Tenreyro, the IMF’s economic counsellor, said the UK stood out among G7 economies for having a plan to narrow its budget deficit. Her remarks come ahead of the government’s October 28 budget, with policymakers facing pressure to address rising living costs and mounting financial challenges.
Despite the improved outlook for this year, the IMF expects UK economic growth to ease to 1.2% in 2027, slightly below its previous forecast of 1.3%. The fund cited persistently high energy prices and elevated long-term interest rates as factors likely to weigh on household consumption and business investment. It also projected average UK inflation of 3.3% in 2026 and 2.8% in 2027, indicating that price pressures are expected to remain above the Bank of England’s 2% target into next year.
The IMF has advised governments against introducing broad-based energy subsidies, recommending that any assistance should be temporary, targeted and designed to minimise economic distortions. With energy bills expected to rise in January, the upcoming budget is likely to be closely watched for measures to support households while maintaining fiscal discipline. The government also faces questions over future public spending commitments, including defence funding, as economic uncertainty linked to geopolitical tensions and rising borrowing costs continues to shape the UK’s financial outlook.
