IMF projects UK core inflation above 2% target until late 2027
The Institute for Fiscal Studies warned this week that Chancellor John Healey’s first budget on 28 October would be a “work of fiction” unless he sets out how he will address what the think tank said were £35bn of future spending pressures. The warning arrives in the same week the International Monetary Fund published its twice-yearly World Economic Outlook, which said UK core inflation is not expected to return to the 2% target until late next year.
The IMF expects average UK inflation of 3.3% in 2026 and 2.8% in 2027, a path it said poses a challenge for Healey and Prime Minister Andy Burnham as they promise voters a “breathing space” from rising costs. The fund singled out the UK as among the countries where core inflation — which excludes volatile commodities such as energy — is not expected to return to target until late 2027.
Healey’s 28 October budget is expected to focus on plans to devolve more tax revenues to mayoralties and on measures to help households cope with higher energy bills ahead of the winter. The IFS warning frames the fiscal challenge Healey will face when he delivers it. Healey will arrive in Bangkok later this week to attend the IMF’s annual meetings for the first time.
Against that backdrop, the IMF also upgraded its 2026 UK growth forecast to 1.3% — a 0.3 percentage-point rise from its July update — citing stronger-than-expected UK GDP at 0.6% in the first quarter of 2026 and 0.5% in the second quarter. The fund simultaneously cut its 2027 UK forecast to 1.2% from 1.3%, saying high oil prices and rising interest rates meant growth was likely to “edge down” next year, “as higher energy prices and long-term interest rates weigh on consumption and investment.”