The International Monetary Fund expects the UK economy to grow by 1.3% in 2026, upgrading its projection from the 1% it forecast in July, before the pace of expansion slows in 2027.
The figure appears in the IMF’s latest twice-yearly assessment of economic prospects around the world. The fund’s forecasts are among the most authoritative available, although, as its own track record shows, projections of this kind can also prove inaccurate.
The upgraded UK number lands against a turbulent global backdrop. According to the IMF, the US-Israel war with Iran has shaken the world economy by severely disrupting the transport and production of energy in the Middle East, pushing oil prices higher and lifting inflation.
Central banks, the Bank of England among them, are expected to raise interest rates in the coming months in an effort to slow the rise in prices.
Even so, the IMF said the global economy is performing considerably better than it had anticipated, in part because of a surge of investment into artificial intelligence.
The IMF’s assessment of borrowing drew particular attention to the UK. Amid widening concern over how much money countries are taking on, the fund said Britain is handling the problem better than every other major economy, stating that the UK “basically stands out, along with India”.
By 2031, the UK is projected to record the lowest annual borrowing of the G7 group, which comprises Canada, France, Germany, Italy, Japan and the US.
Sir Howard Davies, a former deputy governor of the Bank of England, attributed that position largely to the UK having a government with a majority that has committed to tackling the situation. He said the government is expected to do so through tax rises, cuts to public services, or a combination of the two.
By contrast, Sir Howard said the US has said little about reducing its deficit, while France and Germany do not have majority governments.
“So, we [the UK] are not great students, but we look somewhat better than some of the others we are sharing the class with,” he said.
On growth, the IMF’s numbers put the UK on course for the second-fastest expanding economy in the G7 this year, level with Germany.
Sir Howard said that ranking should be read in context.
“We’re still growing slowly. It’s almost like saying we’re winning a slow bicycle race here because other people are going backwards a bit more rapidly than we are.”
While the IMF raised its 2026 growth estimate for the UK, it trimmed its forecast for the following year. Although Britain has absorbed the economic fallout from the Iran war better than expected so far, the fund said that will change next year, as high energy prices and elevated interest rates weigh on how much households spend in shops and how much companies are prepared to invest.
The IMF also said households are likely to keep feeling the squeeze of rising prices. It forecasts UK inflation will average 3.3% this year, and it has lifted its estimate for next year to 2.8%, up from a previous prediction of 2.4%.
Tim Armitage, investment strategist at Quilter Cheviot, said: “There will be increasing inflationary pressure put on the UK and the Bank of England will have to consider further rate rises.”
He added that at least one rate rise is predicted this year, with more expected in the following year.
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