IMF Raises UK Growth Forecast for 2026 but Warns Energy Costs and Borrowing Rates Will Weigh on 2027

London: The International Monetary Fund on Tuesday raised its forecast for British economic growth this year, while cautioning that higher energy prices and rising long-term interest rates are likely to slow expansion in 2027.

In the United Kingdom section of its updated World Economic Outlook, the IMF projected that the British economy will grow by 1.3 percent in 2026, an upgrade from its forecasts of 1.0 percent in July and 0.8 percent in April. Growth is expected to ease slightly to 1.2 percent in 2027, placing Britain in the middle of the range among major advanced economies.

“Higher energy prices and long-term interest rates (will) weigh on consumption and investment,” the Fund said in its assessment of the UK. The broader report notes that artificial intelligence is expected to support global growth, while warning of risks stemming from rising public debt.

The IMF’s outlook comes as long-term government borrowing costs in Britain reached their highest level since 1998 last week. The Bank of England has forecast that the global surge in energy prices will push inflation to a peak above 4 percent early next year.

According to the IMF, British inflation is expected to average 3.3 percent in 2026 and 2.8 percent in 2027, broadly in line with its projections for the euro zone and the United States. The Fund also expects unemployment in the UK to rise to an average of 5.3 percent this year and next, up from 4.9 percent recorded in the three months to the end of July.

On monetary policy, the IMF urged central banks worldwide to act more swiftly in raising interest rates where public confidence in inflation targets has weakened, and to resist pressure to tolerate above-target inflation or excessive government borrowing.

Unlike the European Central Bank and the US Federal Reserve, the Bank of England has not raised interest rates since the outbreak of the US-Iran war in February.