IMF sees higher energy prices and interest rates hitting UK growth
BANGKOK: Higher energy prices and a rise in long-term interest rates are likely to weigh on British economic growth next year, the International Monetary Fund warned on Tuesday, even as it revised up its forecast for expansion this year. The IMF predicts Britain’s economy will grow 1.3% this year, up from predictions of 1.0% in July and 0.8% in April, before slowing to 1.2% growth in 2027,…
The International Monetary Fund (IMF) has warned that higher energy prices and increased long-term interest rates may hinder British economic growth in the coming year. Despite this, the IMF has raised its forecast for British economic expansion this year, projecting a growth rate of 1.3%, up from previous estimates of 1.0% in July and 0.8% in April. The forecast predicts a slowdown to 1.2% growth in 2027, placing Britain in the middle of major advanced economies.
The IMF attributes the impact on the British economy to elevated energy costs and long-term interest rates, both of which will negatively affect consumption and investment. The IMF's update of its World Economic Outlook highlights the role of artificial intelligence (AI) in driving global growth but also warns of the risks posed by rising public debt.
Recent data shows that long-term government borrowing costs in Britain have reached their highest level since 1998, while the Bank of England anticipates that the global surge in energy prices will drive inflation to exceed 4% early next year. According to the IMF, British inflation is expected to average 3.3% in 2026 and 2.8% in 2027, similar to their forecasts for the euro zone and the United States.
The IMF also projects an increase in British unemployment to an average of 5.3% in both 2026 and 2027, up from 4.9% in the three months leading up to July. The IMF suggests that central banks worldwide should raise interest rates more swiftly where public confidence in their inflation targets has weakened, and resist any temptation to allow inflation to surpass target levels or tolerate excessive borrowing.
Unlike the European Central Bank or the US Federal Reserve, the Bank of England (BoE) has not raised interest rates since the onset of the US-Iran conflict in February.
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