The International Monetary Fund has sharply downgraded its growth forecast for the United Kingdom, projecting GDP will rise by just 0.8% in 2026, down from a previous estimate of 1.5%. The revision, the steepest among G7 nations, reflects the impact of the Iran war and weaker economic activity in late 2025.
In its latest World Economic Outlook, released at the spring meeting in Washington, the IMF also cut its 2025 UK growth forecast to 0.8% from 1.3%. The UK is expected to see a modest recovery to 1.3% growth in 2027, though this remains below pre-war projections due to lingering higher energy prices.
Households face further pressure as the IMF now expects UK inflation to rise towards 4% before gradually returning to target by the end of 2027. The upward revision in inflation forecasts may be more concerning than the growth downgrade, according to analysts. Simon Pittaway of the Resolution Foundation noted that the UK is projected to have the highest inflation in the G7 over the next two years.
The IMF warned that escalation of the Iran war could trigger a global recession and a major energy crisis. Meanwhile, the Fund raised its growth forecast for Russia to 1.1% this year, citing higher oil and commodity prices. Bank of England policymaker Megan Greene highlighted that upside risks to inflation remain paramount, though evidence of second-round effects may take months to materialise.
