The IMF lifts Britain’s growth forecast and a Bank of England rate setter calls it proof a rise is needed

The International Monetary Fund upgraded its UK growth forecast for this year, the BBC reported, while warning that risks remain¹. The fund now predicts GDP growth of 1.3% for the UK this year, up 0.3 percentage points on its previous estimate, according to The Guardian^5,7. One summary of the World Economic Outlook said the UK’s 2026 forecast was raised to 1.3% while its 2027 outlook was lowered to 1.2%⁶.

The fund paired the upgrade with warnings. The BBC reported that higher energy prices are expected to hit the economy next year², and The Independent reported the fund’s view that UK households face a sharper rise in inflation than previously thought¹¹. The Times said the fund warned Chancellor John Healey against higher spending, and an economist quoted by The Guardian said he should “stay the course”^4,5.

The fund publishes the World Economic Outlook twice a year, and this edition is the one carrying the UK revision⁷. The Times reported the upgrade alongside its warning to the chancellor on spending⁴.

Why it matters to investors

The upgrade was immediately turned into an argument for higher rates. Greene of the Bank of England said the growth upgrade is proof a rate rise is needed, pointing to faster-than-expected growth and a resilient jobs market as evidence the bank is not doing enough, according to Bloomberg via Yahoo Finance UK⁸. She said the fund’s forecasts show UK monetary policy is not very restrictive, and she is part of a minority on the bank’s Monetary Policy Committee¹⁰.

The Times reported that strong growth strengthens the case for 4% interest rates in her view⁹. The Bank of England has said it expects UK inflation to lift to slightly above 4% in the first quarter of 2027, partly linked to another increase in energy costs¹¹.

What to watch

The immediate event is the budget: the forecast lands as final preparations are being made for the first one under Prime Minister Andy Burnham². Sir Howard Davies, a former deputy governor of the Bank of England, attributed part of the improved position to the UK having a government with a majority³.

For gilts and sterling, the test is whether Greene’s minority view gains support on the committee, since the fund’s numbers are being read as evidence by the hawks rather than as cover for the chancellor^4,8,10.