IMF upgrades UK growth forecast and tells Healey to "stay the course"

The International Monetary Fund has raised its forecast for UK economic growth this year to 1.3%, and urged the chancellor, John Healey, to "stay the course" in repairing the public finances.

Silvana Tenreyro, the IMF's economic counsellor and a former member of the Bank of England's monetary policy committee, said the UK "stands out" among the G7 for having a plan to narrow its deficit. "The UK has already started a consolidation process," she said. "The message for the UK is simply, stay the course."

A slowdown next year

UK growth has been stronger than expected this year, at 0.6% in the first quarter and 0.5% in the second. The Office for National Statistics has pointed to the rapid growth of AI-related businesses as one reason.

But the IMF expects growth to "edge down" in 2027, "as higher energy prices and long-term interest rates weigh on consumption and investment". It cut its forecast for next year slightly, to 1.2%.

It expects UK inflation to average 3.3% this year and 2.8% in 2027, and said core inflation, which strips out volatile energy and food prices, was not expected to return to the 2% target until late next year.

No blanket energy subsidies

Healey is under pressure to announce a generous package of help with energy bills, which are expected to rise sharply in January. But the IMF's World Economic Outlook advises governments against across-the-board subsidies, saying any support should be "temporary, targeted and non-distortionary".

Healey said: "Conflict in the Middle East and Europe is hitting people in the UK and around the world. But Britain's economy is showing strong international resilience in the face of these challenges."

Interest rates

Markets have been raising their expectations of inflation and interest rates since the conflict in the Middle East escalated again in the summer. The Bank of England is widely expected to raise interest rates at its November meeting, following similar moves by the US Federal Reserve, the European Central Bank and the Bank of Japan. Mortgage rates have already been rising.

Megan Greene, a member of the Bank's rate-setting committee, said the IMF's upgrade was evidence that rates should be higher, and that they were "currently not very restrictive".

A global warning

The IMF also warned that the global economy "could soon test the limits of resilience", amid conflicts, high public debt and the risk of a sharp fall in technology shares.

What it means

For households, the forecasts point to a difficult winter: prices rising faster than the Bank's target, energy bills going up in the new year and mortgage rates higher than last year. Healey, who was attending the IMF's annual meetings in Bangkok, will present his first budget on 28 October.