UK Economic Growth Set to Rise This Year, Slow in 2027

Bangla Press Desk:  The UK economy is expected to grow more than previously forecast this year, according to the International Monetary Fund (IMF). The organisation projects economic growth of 1.3% in 2026.

However, growth could slow to 1.2% in 2027 as energy prices and interest rates rise.

The forecasts were outlined in the IMF’s latest report. In July, the organisation had projected UK economic growth of 1% for 2026.

Energy prices have risen due to the US-Iran war. However, the IMF said economies around the world had weathered the shock better than previously expected, although uncertainty remains over the conflict’s long-term effects.

UK Finance Minister John Healey said the government would seek to ease some of the financial pressure on households in its upcoming budget. The government is scheduled to announce its tax and spending plans on October 28.

Meanwhile, rising government borrowing costs have put Healey under pressure. The government must ensure its fiscal plans remain credible to investors and financial markets, on which the UK relies to borrow money to finance public spending.

The IMF’s projections suggest that the UK’s annual borrowing could fall significantly over the next five years. By 2031, the country could also have the smallest budget deficit among the G7 nations.

A budget deficit occurs when government spending exceeds its revenue. The IMF’s forecast suggests that the UK government may move towards reducing spending in the coming years. The IMF chief had previously urged advanced economies around the world to reduce their borrowing.

According to the IMF, UK economic growth could slow to 1.2% in 2027, mainly due to rising energy prices and higher long-term interest rates.

This could weaken households’ purchasing power and prompt businesses to cut investment. Economic growth typically encourages business investment and job creation, creating opportunities for people’s incomes and living standards to improve. Slower growth can have the opposite effect.

Forecasts for economic growth in several countries were cut after the US-Iran war began. Some projections have since been revised upwards as conditions were reassessed. The IMF expects the UK and Germany to record the second-fastest economic growth rates among G7 countries.

Healey said wars in the Middle East and Europe were affecting people in the UK and elsewhere around the world. However, he claimed the British economy was proving resilient despite the international turmoil.

Economists believe Healey may need to find £35 billion to avoid cutting public spending in his first budget while meeting the government’s commitments on defence.

On Tuesday, research organisation the Resolution Foundation urged the finance minister to maintain sound public finances. It also recommended targeted assistance for households struggling to cover the cost of heating their homes.

The foundation said the government should continue efforts to reduce borrowing while helping families cope with the rising cost of living, warning that many households could face financial pressure during the coming winter.

Meanwhile, Conservative Party shadow finance minister Andrew Griffith warned that tax increases in the budget could undermine economic growth. He said working people would bear the burden.

Burnham has pledged to boost economic growth across the country by giving greater powers to regional authorities and local governments. However, his plans have faced criticism from within his own party.

The IMF forecasts that UK inflation will average 3.3% in 2026 before falling to 2.8% in 2027. In both years, inflation is expected to remain above the Bank of England’s 2% target.

The Bank of England has also forecast that inflation could exceed 4% early next year. This could increase the likelihood of interest rate rises.

Higher interest rates would raise borrowing costs for households and make it more difficult for businesses to borrow money to invest.

Healey is scheduled to meet finance ministers from various countries at the IMF’s annual meetings in Bangkok, Thailand, on Tuesday. The discussions are expected to focus on ways to ease economic pressures caused by conflicts in the Middle East and Europe.

The IMF said the global economy had demonstrated considerable resilience in absorbing major shocks. It has continued to show this strength despite the effects of the COVID-19 pandemic, Russia’s invasion of Ukraine and the ongoing conflict in the Middle East.

However, the organisation cautioned that the future economic consequences of the current conflicts remain uncertain.