John Healey should “stay the course” and continue repairing the UK’s public finances, the International Monetary Fund’s top economist has said, after the fund lifted its growth forecast for Britain. Little more than a fortnight before Healey’s first budget, Silvana Tenreyro, the IMF’s economic counsellor, said the UK “stands out” among G7 countries in having a plan to narrow its deficit. Healey is under pressure to announce a generous energy support package in the budget, before the sharp rise in energy bills expected in January.
But in its WEO, the IMF advises member governments against across-the-board subsidies, saying any support should be “temporary, targeted and non-distortionary”. In a fillip for the chancellor, who is poised to arrive in Bangkok later this week, the IMF has upgraded its growth forecast for the UK this year, but expects a modest slowdown in 2027 as higher energy prices take their toll. Responding, 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.” The IMF predicted GDP growth of 1.3% for the UK this year – up 0.3 percentage points from its most recent update in July. UK GDP growth has been stronger than expected in early 2026, at 0.6% in the first quarter and 0.5% in the second quarter. The Office for National Statistics has pointed to the strong expansion of AI-related businesses as one factor behind the upside surprise.
However, the IMF warned that prolonged high oil prices and rising interest rates meant growth was likely to “edge down” in 2027, “as higher energy prices and long-term interest rates weigh on consumption and investment”. It cut its UK growth forecast for next year modestly to 1.2%, from 1.3%. Markets have been revising up their expectations of future inflation and interest rates across big economies, since the Middle East conflict re-escalated in the summer.
The Bank of England’s nine-member monetary policy committee is now widely expected to raise the policy rate at its November meeting – echoing similar moves by the Federal Reserve, European Central Bank and Bank of Japan. Mortgage rates in the UK have already been rising in response to higher funding costs for banks in financial markets. BoE policymaker Megan Greene argued on Tuesday morning that the IMF’s growth upgrade was proof that UK interest rates should be higher.
Speaking to the Atlantic Council at the International Monetary Fund meetings in Bangkok, Greene argued that interest rates were currently not very restrictive. The IMF singled out the UK as among the countries – also including Japan – where core inflation, which excludes volatile commodities such as energy, is not expected to return to the 2% target until late next year. It expects average inflation in the UK to be 3.3% this year, and to remain at 2.8% in 2027 – a challenge for Healey and the prime minister, Andy Burnham, who are promising to offer voters a “breathing space” from rising costs.
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