IMF lifts UK growth outlook but flags 2027 drag

The latest projections from the International Monetary Fund show a modest improvement in the UK’s near-term growth outlook, alongside a softer picture later in the decade. The IMF has upgraded its forecast for UK GDP growth in 2026 to 1.3%. At the same time, it now expects growth to slow to 1.2% in 2027.

These revisions follow an assessment that major economies, including the UK, have been more resilient than previously expected in the face of higher energy costs. However, the IMF’s figures indicate that this resilience is not expected to persist at the same pace as cost pressures continue.

The IMF links the anticipated easing in UK growth in 2027 to higher energy prices and elevated long-term interest rates. It expects these factors to weigh on household consumption as higher bills and borrowing costs limit disposable income and spending power.

Business investment is also projected to be affected. The combination of more expensive energy and higher financing costs is seen as a drag on corporate spending plans, contributing to the lower growth projection for 2027.

The outlook suggests that, while the UK economy may avoid a sharp downturn in the near term, underlying headwinds from the cost of energy and tighter financial conditions could become more apparent over time.

Alongside its growth forecasts, the IMF projects that UK consumer price inflation will remain above target in the medium term before gradually easing. It expects inflation to average 3.3% in 2026, before declining to 2.8% in 2027.

These figures imply that price pressures are likely to stay elevated for longer than many households and businesses might wish, even as they slowly moderate. Persistently higher inflation would maintain pressure on real incomes and could reinforce the dampening effect on consumption highlighted in the growth forecasts.

The interaction between inflation, energy costs and interest rates forms a central theme in the IMF’s assessment. Elevated prices and borrowing costs are seen as key channels through which the current environment will continue to influence the UK’s economic performance over the next few years.

Taken together, the IMF’s upgraded 2026 forecast and reduced 2027 projection depict a mixed outlook for the UK. Growth is expected to be somewhat stronger than previously thought in the nearer term, but momentum is forecast to fade as cost pressures build.

This configuration of higher-for-longer inflation, energy costs and interest rates poses a complex backdrop for economic policy. Decisions on fiscal support, monetary policy and broader economic strategy will need to account for both the improved resilience in the short run and the anticipated drag on activity further ahead.