IMF Upgrades UK Growth Forecast Amid Fiscal Consolidation Recommendations

The International Monetary Fund has revised its 2026 UK GDP growth forecast upward to 1.3%, representing a 0.3 percentage point increase from July projections. Despite this upgrade, the organization anticipates a deceleration to 1.2% in 2027, citing the dampening effects of elevated energy prices and long-term interest rates on investment and consumption.

International officials have advised the UK government to maintain its current fiscal consolidation strategy to narrow deficit. The Fund cautioned against broad-based energy subsidies, recommending that any fiscal support remain temporary, targeted, and non-distortionary to avoid inflationary pressure.

Core inflation in the UK is not projected to return to the 2% target until late 2027, with annual averages expected at 3.3% for 2026 and 2.8% for 2027. Consequently, market expectations for further Bank of England interest rate hikes have intensified, supported by recent commentary from monetary policymakers regarding the need for more restrictive conditions to address persistent inflation.