IMF lifts UK growth forecast to 1.3% and praises its borrowing plans

The International Monetary Fund has raised its forecast for UK growth in 2026 to 1.3%, from the 1% it predicted in July, while warning that the improvement will give way to slower expansion in 2027. The report, published on 13 October 2026, cited the economy’s resilience.

At its annual meeting in Bangkok, Thailand, IMF officials praised the UK’s plans to reduce borrowing on three separate occasions. The fund expects the UK to be the second-fastest growing economy in the G7 in 2026, alongside Germany.

The IMF said economies around the world had proved more resilient than expected to the energy-price shock caused by the US-Iran war. Paul Dales, chief UK economist at Capital Economics, said the UK economy had shown 'remarkable resilience to higher energy prices and borrowing costs'.

Recent figures offered some support for that view. The economy grew by 0.7% in the three months to August 2026 and by 0.1% in August 2026.

Liz McKeown, the ONS director, said computer programming was the biggest contributor to growth over the three-month period. Services were flat in August, while construction contracted. Production and construction also shrank over the three months to August.

The stronger forecast has limits. The IMF expects growth to slow to 1.2% in 2027 as higher energy prices and long-term interest rates restrain household spending and business investment.

It expects inflation to average 3.3% in 2026. Its forecast for 2027 was raised to 2.8%, from a previous prediction of 2.4%.

Sir Howard Davies, a former deputy governor of the Bank of England, called the 2026 growth forecast 'better than it might have been', while saying the outlook for 2027 was 'more pessimistic'.

The fund’s approval centred on the government’s fiscal plans. It said the UK was one of the few major economies on course to stabilise national debt and the only G7 country with a serious plan to consolidate annual borrowing over the next few years, worth nearly 4% of the size of the economy.

Silvana Tenreyro, the IMF’s chief economist, said the UK 'has already started the consolidation process and it is the country that basically stands out, along with India'. She told reporters that the planned borrowing reductions 'stand out'.

Kristalina Georgieva, the IMF managing director, said: 'The UK is actually one country where action to reduce debt and deficit has been taken decisively and we see the UK in that sense enjoying a bit of a better growth prospect'.

The UK is projected to have the lowest annual borrowing in the G7 in 2031. The IMF said the US, Germany and Japan were increasing borrowing.

That fiscal position sits beside a more immediate burden. The UK has often had the highest borrowing rates in the G7 since the Liz Truss mini budget.

John Healey, the Chancellor of the Exchequer, said the government would seek to 'provide some breathing space' for households in the Budget. He said wars in the Middle East and Europe were 'hitting people in the UK and around the world'.

The government is due to set out its tax and spending plans on 28 October. The question for the Budget is whether it can offer that relief while preserving the borrowing reductions the IMF has singled out.