The International Monetary Fund (IMF) has forecasted that the UK economy will grow by 1.3% in 2026, an increase from the previous estimate of 1% made in July. However, the IMF cautioned that higher energy prices and interest rates could slow growth to 1.2% in 2027. The report noted that global economies have shown resilience to the energy price shock stemming from the US-Iran conflict, but the economic implications remain uncertain. Chancellor John Healey indicated that the government aims to provide support for households in the upcoming Budget, which will be announced on 28 October.
The IMF's projections suggest that the UK will experience a significant reduction in government borrowing, with the lowest annual deficit among G7 countries by 2031. This indicates potential cuts to public spending in the coming years. Healey acknowledged the impact of conflicts in the Middle East and Europe on the UK economy, while asserting that it is demonstrating strong international resilience.
Economists estimate that Healey may need to identify £35 billion to avoid public spending cuts while fulfilling defense commitments. The Resolution Foundation has urged the chancellor to repair public finances while providing targeted support for those struggling with rising living costs. Shadow Chancellor Andrew Griffith warned that tax increases could hinder growth. The IMF also projected inflation to average 3.3% this year and remain above the Bank of England's target in 2027 at 2.8%. Healey is expected to meet with finance ministers at the IMF's annual meeting in Bangkok to discuss mitigating the economic impacts of ongoing conflicts. The IMF highlighted the global economy's ability to absorb shocks from various crises, including the Covid pandemic and geopolitical tensions.