Three things we've learnt about the UK economy from the IMF

Countries around the world have had their future economic prospects assessed by influential body, the International Monetary Fund (IMF).

What the IMF says matters – it aims to keep the global economy stable and its twice-yearly forecasts are one of the most authoritative looks at what is really going on around the world.

Yet like all forecasts they can also turn out to be incorrect, so they shouldn't be treated as gospel.

Here are three things we've learnt about the UK from the IMF's latest report.

1. The UK is weathering the Iran war better than expected

The global economy has been rocked by the US-Israel war with Iran.

The transportation and production of energy in the Middle East has been severely disrupted, causing oil prices to jump and inflation to rise.

To calm the rate of price rises, central banks, including the Bank of England, are expected to hike interest rates in the coming months.

Despite all this, the IMF said the global economy is doing much better than expected, partly because of the surge of investment into artificial intelligence (AI).

And this is good news for the UK. The IMF said its economy would expand by 1.3% in 2026, up from the 1% it predicted in July, before slowing in 2027.

A growing economy means companies are investing more and hiring more people while shoppers have more money to spend. A shrinking economy means the reverse is true.

2. The UK is doing better than other major economies

There is increased concern about how much money countries are borrowing, but the IMF said the UK is doing better than all other major economies at this.

The IMF said the UK "basically stands out, along with India" when it comes to addressing the problem and by 2031 it is projected to have the lowest annual borrowing of the G7 group of countries, which includes Canada, France, Germany, Italy, Japan and the US.

Sir Howard Davies, former deputy governor of the Bank of England, said this was largely because the UK has a government with a majority which has committed to tackling the situation, which it is expected to achieve either through tax rises, cuts to public services, or a mix of both.

By contrast, he says the US has said little about reducing its deficit, while France and Germany don't have majority governments.

"So, we [the UK] are not great students, but we look somewhat better than some of the others we are sharing the class with," he said.

Meanwhile, the IMF's growth forecasts for the UK mean it is expected to have the second-fastest growing economy in the G7 this year along with Germany.

Sir Howard believes this should also be seen in context.

"We're still growing slowly. It's almost like saying we're winning a slow bicycle race here because other people are going backwards a bit more rapidly than we are."

3. But things could get worse

While the IMF boosted its projection for the UK's growth in 2026, it slightly downgraded its forecasts for next year.

While the UK has handled the economic fallout from the Iran war better than expected so far, it says this will change next year as high energy prices and elevated interest rates affect how much people spend in shops and how much companies are willing to invest.

In addition, the IMF has said households are likely to continue feeling the pinch of rising prices. It forecasts inflation in the UK will average 3.3% this year and it has raised its estimate for next year to 2.8% from its previous prediction of 2.4%.

"There will be increasing inflationary pressure put on the UK and the Bank of England will have to consider further rate rises," says Tim Armitage, investment strategist at Quilter Cheviot.

He added that at least one rate rise is predicted this year, with more expected to come next year.

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