UK 2026 growth forecast upgraded to 1.3%, though 2027 outlook trimmed

The International Monetary Fund published its twice-yearly World Economic Outlook on Tuesday in Bangkok, where finance ministers and central bankers are gathering this week for the IMF and World Bank’s annual meetings. The report carries a sharper warning than the July update: while global growth has held up better than expected through the first six months of the Middle East conflict, the buffers governments drew on to contain the damage have largely been used up.

“Without shoring up supply capacity and replenishing policy buffers, the global economy could soon test the limits of resilience,” the IMF wrote. “Inventories in energy markets are dwindling and additional geopolitical shocks could still transmit rapidly through prices and supply disruptions.”

The rerouting of oil supplies away from the Strait of Hormuz and the release of strategic reserves — including the largest-ever emergency release by the International Energy Agency in March, which the IEA said it would accelerate after a meeting of oil ministers last month — helped contain the impact on oil prices from the US-Iran war. The fund said those reserves are now largely spent.

The US strategic petroleum reserve was recently reported to have fallen to its lowest level since 1982. Last week, Donald Trump agreed to a deal with Vladimir Putin to temporarily lift sanctions on US imports of Russian diesel in an attempt to bring down costs for consumers, which analysts said would have little “meaningful” effect.

The report raised the fund’s 2026 global growth forecast marginally, to 3.1% from 3% in July. Next year’s forecast is unchanged, at 3.4%. US growth remains at 2.3% this year and was revised up to 2.3% for 2027 from 2.2%.

For the United Kingdom, the IMF predicted GDP growth of 1.3% this year — up 0.3 percentage points from its July update — in welcome news for the chancellor, John Healey, who is set to arrive in Bangkok later in the week. But the fund also warned that growth was likely to “edge down” in 2027 as higher energy prices and long-term interest rates weigh on consumption and investment, cutting its UK growth forecast for next year to 1.2% from 1.3%.

Global inflation is expected to reach 4.7% this year — the same level forecast in July — and to decline to 4.1% in 2027, up from 4% in the previous update. The persistence of elevated oil prices means the spike in inflation is now expected to last longer than previously forecast.

The fund warned that “risks are skewed to the downside.” It pointed in particular to the threat of “a prolonged stalemate or further escalation in the Middle East,” which would push energy and food prices higher. “Further disruptions to energy infrastructure, cyber-attacks, or extreme weather events could amplify these effects,” the IMF added.

Trump has continued to insist that he could launch another wave of attacks on Iran in the coming weeks, with little sign of a peace agreement being negotiated.

The IMF urged central banks not to overreact to short-term inflation spikes but to be ready to respond quickly if price growth appears to be becoming entrenched. “With economic conditions in flux, agility is at a premium,” it said. The fund cited the risk of an AI-driven market crash alongside energy-market turmoil.

Ahead of the Bangkok gathering, IMF managing director Kristalina Georgieva urged governments to tighten their belts amid rising global debt levels. “We cannot keep delaying necessary policy action — you have the tools, now have the wisdom to use them,” she said.