IMF lifts UK growth estimate but warns risks remain

(Sharecast News) - The International Monetary Fund raised its growth forecast for the UK on Monday, but warned risks remained, including "domestic uncertainty".

The IMF still expects economic growth to slow in 2026, as the Iran war dampens the UK's near-term prospects. In April it said the country would likely be one of the hardest hit by the conflict and predicted growth would slow to 0.8% this year from 1.4% in 2025.

However, publishing its latest outlook for the UK, the IMF now expects the economy to grow by 1.0% in 2026, following a better-than-expected first quarter. It expects inflation to peak at just below 4% by the end of this year before returning to target towards the end of 2027.

It noted: "The main risk is a prolonged war in the Middle East, resulting in higher energy and food prices for an extended period, and sustained global market volatility, which would weigh on confidence and hurt economic activity."

But it also warned that "domestic uncertainty" could add to an "already volatile global environment, holding back consumption and investment decisions".

The government has been thrown into turmoil after poor local election results saw Wes Streeting resign as health minister and Greater Manchester mayor Andy Burnham announce plans to run for Parliament, both so they can challenge Keir Starmer's leadership.

Starmer has said he has no plans to step down as prime minister, and any formal challenge will likely take months, not least as Burnham - who is not an MP - has to win a by-election first.

The uncertainty has weighed heavily on bond markets, sending government borrowing costs higher.

The IMF said the government must continue reducing the deficit and warned of "difficult choices" in the years ahead as public spending continued to rise.

But it concluded: "The government's structural reform agenda encompasses the right areas - planning, skills, innovation, trade diversification and energy security. Given inevitable lags, the authorities should sustain implementation, supported by greater prioritisation, systematic monitoring and transparent progress reporting."

Chancellor Rachel Reeves called the report "yet more proof that this government has the right economic plan. Protecting households and businesses from rising costs is my priority."