IMF raises UK 2026 growth view but warns of 2027 slowdown

what happened

Newsmetry API reports that the International Monetary Fund now expects the British economy to expand by 1.3% in 2026, up from 1.0% in its July forecast and 0.8% in April. Growth is then projected to ease to 1.2% in 2027, placing the UK around the middle of the major advanced economies.

The IMF said costlier energy and higher long-term interest rates would restrain household consumption and business investment. Long-term UK government borrowing costs reached their highest level since 1998 last week. The Bank of England has also warned that the worldwide jump in energy prices could push inflation above 4% early next year.

UK inflation is forecast to average 3.3% in 2026 and 2.8% in 2027, broadly matching the IMF’s projections for the euro zone and the United States. Unemployment is expected to average 5.3% this year and next, compared with 4.9% in the three months through the end of July. The fund urged central banks to tighten policy more quickly when confidence in their inflation targets has weakened, while resisting above-target inflation and excessive borrowing. The Bank of England has kept rates unchanged since the US-Iran war began in February, unlike the European Central Bank and the Federal Reserve.

why it matters

For markets, the combination of elevated energy costs, inflation pressure and expensive long-term borrowing complicates the outlook for UK demand, gilts and sterling.

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