The International Monetary Fund has cut its growth forecasts for the United Kingdom for 2026 and 2027, citing the impact of the Iran war and weak economic performance in late 2025. The UK experienced the sharpest downgrade among G7 nations in the IMF's latest World Economic Outlook, released during its spring meeting in Washington DC.
UK GDP is now expected to grow by just 0.8% this year, down from a previous forecast of 1.3%. The forecast for 2027 has been reduced from 1.5% to 1.3%. The IMF warned that an escalation of the Iran conflict could trigger a global recession, with the UK particularly vulnerable due to its high inflation and interest rates prior to the crisis.
In a further blow to households, the IMF predicts inflation will rise towards 4% before returning to target by the end of 2027 as energy price shocks fade and labour market weakness curbs wage growth. Simon Pittaway, Senior Economist at the Resolution Foundation, noted that British households are more exposed than their peers, with the UK set to experience the highest inflation in the G7 over the next two years.
The IMF also raised its growth forecast for Russia to 1.1% this year, driven by higher oil and commodity prices resulting from the Middle East conflict. Meanwhile, Bank of England policymaker Megan Greene stated that upside risks to inflation remain “paramount” in her thinking on interest rates, though evidence of second-round effects may take months to materialise.
