IMF sees higher energy prices and interest rates hitting UK growth

Business Recorder reported that the International Monetary Fund now expects Britain's economy to expand 1.3% this year, an upgrade from its July estimate of 1.0%. Growth is then projected to slow to 1.2% in 2027, leaving Britain mid-ranked among major advanced economies. The Fund's warning, issued on Tuesday in its World Economic Outlook update, is that costlier energy and higher long-term borrowing costs will restrain spending and investment.

Inflation is forecast at 3.3% for 2026 and 2.8% for 2027, a level similar to the Fund's outlook for the euro area and the US. Unemployment is expected to average 5.3% over this year and next, up from 4.9% in the three months ending in July. Long-term UK government borrowing costs reached their highest level since 1998 last week, and the Bank of England expects energy-driven inflation to peak above 4% early next year.

The Fund urged central banks worldwide to move faster on rate increases when the public's trust in inflation goals has slipped, and to resist tolerating inflation above target or heavy borrowing. Unlike the European Central Bank and the US Federal Reserve, the Bank of England has not lifted rates since the US-Iran war began in February.