The International Monetary Fund has upgraded its growth forecast for the UK, projecting GDP expansion of 1% this year, up from 0.8% in its April estimate. The July update, finalised before the latest Middle East hostilities, makes the UK the third fastest-growing economy in the G7, behind the US at 2.3% and Canada at 1.1%.
The modest improvement suggests incoming prime minister Andy Burnham may inherit an economy less damaged by the Iran conflict than previously feared. The IMF left its forecast for UK growth next year unchanged at 1.3%, with inflation expected to return to the government’s 2% target by mid-2027.
Official data meanwhile showed UK inflation unexpectedly held steady in May, with financial markets pricing in just one interest rate rise by next spring. During the height of the conflict, there were fears the Bank of England would need successive increases to combat soaring prices.
Global oil prices have fallen sharply since last month’s US-Iran memorandum of understanding, but surged on Wednesday after Donald Trump declared the ceasefire “over”. The IMF noted that advances in artificial intelligence have helped cushion the impact of costlier energy, though regional effects vary – retail gasoline prices have risen 30% in Asia but only 15% in Latin America, while LNG prices are up 50% in Asia and 25% in Europe.
The Fund warned that risks remain, including renewed conflict and a possible correction in technology-driven expectations. Countries worst hit are energy importers with limited involvement in global tech supply chains. Burnham, due to take office on 17 July unless a last-minute challenger emerges, has yet to name his chancellor. Responding to the report, Reeves said: “Our choices mean the economy is in a better position to deal with the costs of the war in Iran while kickstarting long-term growth by focusing on our three big choices – boosting AI, regional growth and strengthening trade with the EU.”
