The UK economy is forecast to grow by more than previously expected this year before higher energy prices and interest rates hit the economy in 2027, the International Monetary Fund (IMF) said.
The organisation’s latest report, which is closely watched by the government, said the UK economy would expand by 1.3% in 2026, up from the 1% it predicted in July, before slowing in 2027.
Economies across the world have proved more resilient to the energy price shock caused by the US-Iran war, the IMF said, but it warned the economic fallout from the conflict remained “highly uncertain”.
Chancellor John Healey said the government would look to “provide some breathing space” for households in the Budget.
Healey is making the final preparations to Andy Burnham’s new-look government’s tax and spending plans, which will be announced on 28 October.
Government borrowing costs have surged, placing pressure on the chancellor to ensure his plans are credible in the eyes of financial markets, which the UK relies on to borrow money.
However, the organisation said the UK is one of the only major economies on course to stabilise levels of national debt. The UK is also projected to have the lowest annual borrowing in the G7 in 2031.
The head of the IMF has previously called on the world’s advanced economies to cut borrowing and reduce debt levels.