The IMF Has Marked Britain Up for This Year and Down for Next. Read the Second Number
The Fund now expects the UK to grow 1.3 per cent in 2026, up from 1 per cent, then slow to 1.2 per cent in 2027 as energy bills and borrowing costs bite. Inflation stays above target in both years. The Chancellor has 15 days to decide which number his Budget answers.
The International Monetary Fund published its October World Economic Outlook in Bangkok on Tuesday and lifted its forecast for British growth this year to 1.3 per cent, from 1 per cent in July and 0.8 per cent in April. The Treasury seized on the upgrade within the hour: Chancellor John Healey said Britain was forecast to be the joint second fastest growing economy in the G7 in 2026. That is true, alongside Germany, and it is the least interesting thing in the report.
The Fund's second number is the one that matters for the Budget on 28 October. It expects growth to slow to 1.2 per cent in 2027 because, in its words, higher energy prices and long-term interest rates weigh on consumption and investment. Inflation is forecast to average 3.3 per cent this year and 2.8 per cent next, both revised up and both above the Bank of England's 2 per cent target. Unemployment is expected to average 5.3 per cent this year and next, up from 4.9 per cent in the three months to July.
If the OBR agrees with the Fund that 2027 is slower than 2026, the Chancellor will be presenting a Budget with the best growth year of his term already behind him.
From the analysisTwo things explain the upgrade, and neither is a British policy success. The first is that the Fund has reversed the downgrades it made when the US-Iran war began and oil went above $100 a barrel; the shock has proved less damaging than feared, in Britain and almost everywhere else. The second is the global wave of investment in artificial intelligence infrastructure, which Reuters reports lifted Britain's forecast by 0.3 percentage points and kept world growth at 3.1 per cent. Managing Director Kristalina Georgieva called that investment a demand shock that is holding the world economy up while the energy shock drags it down.
The Fund's praise for Britain is specific and worth quoting precisely. Chief Economist Silvana Tenreyro said the UK had already started the consolidation process and basically stands out, along with India, and should stay the course. The Fund projects that Britain will cut annual borrowing by nearly four percentage points of GDP between 2025 and 2031, more than any other G7 economy, most of which are running their deficits wider over the same period. On that path Britain would have the lowest annual borrowing in the G7 by 2031 and the longest average debt maturity.
The market has already told Mr Healey what it thinks of the path so far. Long-dated gilt yields reached their highest level since 1998 last week, and the ten year yield touched about 5.5 per cent, which the Institute for Fiscal Studies estimates leaves him needing roughly £35 billion to meet existing spending plans and defence commitments without new cuts. Governor Andrew Bailey said in Istanbul last week that fiscal policy must be credible and directed at stability, and that calls for more spending grow louder exactly when borrowing costs rise and growth weakens.
We think the Chancellor should treat the upgrade as borrowed and the 2027 slowdown as his. The upgrade came from oil and from other people's data centres. The slowdown comes from the two prices a British government can actually move: the cost of energy, where the Prime Minister has set a ten year target to reach European levels, and the cost of long-term borrowing, which responds to how much the state intends to spend. A Budget that answers the first number with a giveaway and the second with a tax rise would get both wrong.
The Office for Budget Responsibility publishes its own forecast alongside the Budget on 28 October, and the Bank of England's next rate decision follows on 5 November, with inflation expected to pass 4 per cent in the first quarter of 2027. If the OBR agrees with the Fund that 2027 is slower than 2026, the Chancellor will be presenting a Budget with the best growth year of his term already behind him.
The Semaform
The IMF's October 2026 World Economic Outlook lifted UK growth for 2026 to 1.3 per cent and projected a slowdown to 1.2 per cent in 2027, with inflation at 3.3 and 2.8 per cent and unemployment averaging 5.3 per cent; global growth was nudged up to 3.1 per cent on AI investment.
The upgrade is borrowed from oil prices and global AI capital spending. The 2027 slowdown is domestic, driven by energy costs and borrowing costs the government can influence, and the Budget should be judged against that number.
The Treasury says the figures show strong international resilience and a deficit path better than any G7 peer, which earns room for targeted cost of living support this winter; the IMF itself says the UK stands out on consolidation and should stay the course rather than tighten further.
Sources
- International Monetary Fund, World Economic Outlook, October 2026, published 13 October 2026
- International Monetary Fund, United Kingdom: 2026 Article IV Consultation press release, August 2026 (the earlier 1.0 per cent forecast)
- Reuters, IMF sees higher energy prices and interest rates hitting UK growth, 13 October 2026
- BBC News, UK growth upgraded but energy prices and rates to bite in 2027, IMF says, 13 October 2026
- Reuters, AI investment props up global growth, but war and debt threaten outlook, IMF says, 13 October 2026
A human editor is accountable for this analysis. Read our editorial standards, how we use AI, what the content labels mean, and how to ask for a correction.
