UK growth forecast upgraded by IMF, but 2027 slowdown looms

Energy bills and council tax increases add to household cost pressures

However, it anticipates a tougher year ahead, with expensive energy and higher interest rates likely to slow growth in 2027.

The global economy has proved more resilient than expected following the energy shock caused by the US-Iran war.

The IMF said this ability to withstand the disruption had been a defining feature of 2026 so far, but warned that the effects of rising costs could become more apparent next year.

Consumers are already feeling the pressure of household expenses. Energy bills remain a concern, prompting questions over whether keeping the heating on at a low temperature all day actually saves money. 

Anger over local charges has also grown following a council tax increase of 94%.

These pressures will be among the challenges facing Chancellor John Healey when he delivers the Government’s Budget on 28 October. 

Healey has promised to “provide some breathing space” for households, but the sharp rise in government borrowing costs has complicated his plans.

Investors will be looking for details of how he intends to support the public while managing the country’s finances.

UK forecast to have lowest borrowing in G7 by 2031

Despite the uncertain outlook, the IMF has encouraged the UK to continue its efforts to reduce borrowing. 

Speaking at the release of the fund’s World Economic Outlook, chief economist Silvana Tenreyro said the UK had already started cutting its borrowing, putting it alongside India as a country making progress on this front.

Tenreyro was asked whether the Government should go further in reducing its borrowing. Her response was that it should “stay the course”. 

The IMF expects UK borrowing to drop by almost four percentage points of gross domestic product (GDP) by 2031, the largest projected reduction among G7 economies.

The fund also forecasts that the UK will have the lowest annual borrowing in the G7 by that point. 

However, its latest assessment suggests the economy could lose momentum before then, as higher energy prices and interest rates weigh on both businesses and households.