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

Three key insights have emerged about the UK economy from the latest report by the International Monetary Fund (IMF). First, the global economy, significantly impacted by the US-Israel war with Iran, has seen disruptions in energy production and transportation in the Middle East, leading to increased oil prices and inflation. Central banks, including the Bank of England, are anticipated to raise interest rates to manage the pace of price increases.

Despite these challenges, the IMF projects that the UK economy will expand by 1.3% in 2026, surpassing the previous forecast of 1%, and then slow in 2027.

Second, the IMF highlights the UK's strong performance compared to other major economies in addressing debt issues. With a majority government committed to tackling the problem, the UK is projected to have the lowest annual borrowing among the G7 countries, including Canada, France, Germany, Italy, Japan, and the US, by 2031. Sir Howard Davies, former deputy governor of the Bank of England, attributes this to the UK's government's resolve, which could be achieved through tax increases, cuts to public services, or a combination of both.

In contrast, Davies notes that the US has shown little interest in reducing its deficit, while France and Germany lack majority governments.

Lastly, while the IMF has raised its growth forecasts for the UK, it has slightly reduced its projections for 2025. The increased inflationary pressures, driven by high energy prices and elevated interest rates, are expected to affect consumer spending and corporate investment. Tim Armitage, an investment strategist at Quilter Cheviot, warns that the Bank of England may need to consider additional rate rises to combat inflation, which is projected to average 3.3% in 2025 and 2.8% in 2026.