UK growth forecast upgraded by IMF but risks remain

"The IMF said the UK “remained resilient” but added a prolonged conflict in the Middle East risked hitting growth and resulting in “higher energy and food prices”. “Domestic uncertainty could also add to the already volatile global environment, holding back consumption and investment decisions,” it added. The IMF said the UK economy had entered the latest global shock with “more momentum than expected”."

"The upgrade comes after figures released last week showed the economy grew by 0.6% in the first three months of the year, led by a rebound in areas such as retailing and construction. The IMF said inflation, which is the rate prices rise at over time, would increase “temporarily” due to higher energy prices. As the UK imports more energy than it produces domestically, it is more sensitive to rapid rises in global prices."

"But the IMF suggested the Bank of England does not need to raise interest rates this year in response. “Holding rates for the remainder of the year should be sufficient to bring inflation back to target (2%) by end-2027,” it said. The upgraded growth forecast was welcomed by Chancellor Rachel Reeves on Monday."

"Reeves said the upgrade in growth was “proof” that the government has the “right economic plan”. “The choices I have made as chancellor mean our economy is in a stronger position as we deal with the costs of the war in Iran,” she said. Following calls for the Prime Minister, Sir Keir Starmer to resign last week, Reeves warned her fellow Labour MPs that “putting our stability at risk when signs of progress are emerging would leave families and businesses worse off”."

The IMF upgraded its forecast for UK growth this year, stating the economy remained resilient and had more momentum than expected. The forecast upgrade followed data showing 0.6% growth in the first three months, supported by rebounds in retailing and construction. The IMF warned that a prolonged conflict in the Middle East could reduce growth through higher energy and food prices. It also cited domestic uncertainty as a factor that could further restrain consumption and investment decisions. Inflation was expected to rise temporarily due to higher energy prices, with the UK’s reliance on imported energy increasing sensitivity to global price shocks. The IMF said Bank of England interest rates could be held to bring inflation back to target by end-2027.

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