IMF raises UK growth forecast for 2026
Newsflash: The International Monetary Fund has raised its forecast for UK growth this year.
IMF economists now expect UK GDP to rise by 1.0% in 2026, up from the 0.8% it forecast in April, due to the economy’s “strong pre-war momentum” and a “robust” performance in the first quarter of this year when the economy grew by 0.6%.
That upgrade should cheer ministers, even though it’s still below the 1.3% growth which the IMF predicted in January before the Iran war began, and would be a slowdown compared with 2025 when the UK grew by 1.4%.
The improved forecast comes after the IMF concluded its annual assessment of the UK economy (known as an Article IV Mission).
The IMF says:
While the UK economy has remained resilient in recent years, the war in the Middle East is dampening near-term prospects.
Growth is projected to slow to 1.0 percent this year, then gradually recover as the shock dissipates. Higher energy prices are expected to push inflation up temporarily and delay the return to the central bank’s target by about one year.
Key events
Closing post
Time to wrap up….
The International Monetary Fund has urged Britain to “stay the course” to cut government borrowing amid growing bond market concerns over a Labour leadership challenge.
As Keir Starmer battles to cling on to power, the Washington-based fund said it was important to continue reducing the budget deficit “given market pressures and elevated implementation risks”.
In its annual health check on the UK economy, the IMF praised the chancellor, Rachel Reeves, for striking “a good balance between deficit reduction and growth-friendly spending” as it upgraded its growth forecasts for 2026.
After sounding the alarm last month that Britain would suffer the heaviest economic blow from the Iran war, it increased its forecasts for growth of 0.8% to 1% to reflect the UK’s “strong prewar momentum” and a robust performance in the first quarter of the year.
Reeves said the upgrade showed the government had the “right economic plan” after official figures released last week showed the economy grew at a stronger rate than first anticipated at the start of the year.
In a thinly veiled rebuke to Labour MPs considering toppling Starmer, she said: “Putting our stability at risk when signs of progress are emerging would leave families and businesses worse off.”
In other news….
A sell-off in government bonds has reversed, thanks to a drop in the oil price.
Japanese 30-year borrowing costs hit record highs earlier today, amid reports Tokyo was drawing up a new energy support package.
But UK government bonds have staged a small recovery, pushing down the yields (or interest rates) on British debt.
British drivers have been warned to expect a jump in petrol prices later this week.
FTSE 100 closes 1.26% higher
After a choppy start to the day, the London stock market has closed higher this afternoon.
The FTSE 100 index of blue-chip shares has closed 128 points higher at 10,323.75 points, a gain of 1.26% today.
Utilities led the risers, with Centrica up 4% and National Grid 3.66% higher.
One factor behind the UK’s weak growth in recent years is that business investment has been modest, lagging behind the US.
The Financial Times reported yesterday:
Preliminary figures published alongside GDP data on Thursday showed that UK business investment was up 11 per cent in the first quarter of this year compared with Q4 2019, before the pandemic, according to official data.
This is less than half the pace of the 28 per cent rise in US non-residential private domestic investment over the same period, with AI being a driver of capital spending.
Bond meltdown eases as oil drops
The early selloff in government bonds has now eased, thanks to a drop in the oil price.
The yields (interest rates) on UK long-dated bonds have dropped further from Friday’s multi-year highs, while US borrowing costs are also slightly lower.
UK 30-year bond yields are now down almost nine basis points at 5.76%, away from the 28-year high of 5.85% set last Friday.
That follows a drop in the oil price, following a report that the US has proposed a temporary waiver of sanctions on Iran’s oil to agree to a peace deal and reopen the strait of Hormuz.
IMF: Pensions triple lock may need to go
Britain may need to ditch the pensions triple lock, or bring in more NHS charges, the International Monetary Fund has warned.
In the Concluding Statement of the 2026 Article IV Mission to the UK, the IMF warns that ‘difficult choices’ will be needed to cope with rising pressures from ageing, defense, and the climate transition.
The long-term scope for further tax rises is ‘becoming limited’, the IMF suggests, meaning spending reforms will be needed.
It says:
Deeper expenditure reforms could, for example, entail replacing the triple lock with a policy of indexing the state pension to the cost of living, improving the targeting of social benefits, as well as focusing more on preventative care, and expanding charges in the health system while protecting the vulnerable.
[The triple lock means pensions rise each year in line with wages, inflation, or by 2.5%, whichever is higher].
Hacks beat Flaks
It’s the business end of the football season, and few games are as closely fought as the annual Hacks v Flaks charity game.
We’re pleased to report that the cream of UK financial journalism beat their counterparts in the communications industry in what’s been described as a physical battle at Plough Lane, home of AFC Wimbledon, on Friday night.
The game finished 3-1 to the Hacks, including Richard Partington of this parish.
The Hack’s goal-scoring stars were the Financial Times’ Ramsay Hodgson with two, and freelancer Lee Stobbs with a late “breakaway goal at the death”, while FTI Consulting’s Mathias Davies got the Flaks onto the scoresheet.
[FTI also claim they were denied a “stonewall” penalty, but VAR hasn’t yet reached these heights, so we’ll have to file that under ‘according to sources’…].
More importantly, the match also raised over £7,500 which AFC Wimbledon Foundation will use to run activities for young people (often those on free school meals), and the elderly in South-West London.
London tube strikes called off at last minute
Planned strikes by drivers on the London Underground this week have been called off.
The RMT union has announced that the two 24-hour stoppages from midday on Tuesday, which were set to disrupt travel over four days this week, had been suspended.
Andy Burnham is giving a speech now, in which he explains that “40 years of neoliberalism that have not been kind to the north of England” – starting with the deindustrialisation of the 1980s, followed by privatisations in the 90s and austerity in the 2010s.
My colleague Andrew Sparrow’s Politics Live blog has all the details:
The IMF’s UK growth upgrade is welcome, but won’t make a meaningful difference, argues George Lagarias, chief economist at Forvis Mazars:
“It’s a (very) welcome respite for the UK economy, presently beset by domestic uncertainty, rising borrowing costs, a global trade war and a seemingly interminable tumult in the Middle East.
The IMF upgraded GDP growth prospects for 2026, from 0.8% to 1%, citing economic resilience and better-than-expected growth earlier in the year. With that said, the upgrade is mostly a backward-looking one, and would probably contribute little to changing monetary policy or improving borrowing costs.
The Fund cites significant challenges to growth and inflation if the Hormuz Strait remains closed for much longer.”
Petrol pump price closing in on April’s three-and-a-half-year high
Motorist groups are warning that UK fuel prices will soon rise over the highs set early in the Iran war.
The AA confirm that petrol pump prices are closing in on April’s three-and-a-half-year high, which they predict could be hit within days as the bank holiday weekend approaches.
The RAC has predicted that later this week the average price of a litre of petrol will eclipse the peak on 15 April, which was the last day prices peaked since the war in Iran began.
According to the RAC, the average price of a litre of petrol has risen to 158.24 today, only slightly below the 158.31p recorded on 15 April.
Luke Bosdet, the AA’s spokesman on pump prices, says:
“The need for ditching or delaying the fuel duty increase, due from September onwards, has been made more critical by average UK petrol pump prices climbing to within 1p of the three-and-a-half-year high, set in April.”
Yesterday, the Sun on Sunday reported that Rachel Reeves is expected this week to announced that the 5p increase in fuel duty that was due to take effect in the autumn will not now go ahead.
Downing Street have declined to comment on ‘tax speculation’, but didn’t deny the story, our Politics Live blog reports.
UK moves towards looser bank ringfence
Kalyeena Makortoff
The Treasury has fired the starting gun on loosening ringfencing rules for UK banks, but it’s still a relatively long road ahead, with consultations due to launch this summer and formal changes to legislation due…“as soon as parliamentary time allows.”
While the changes are due to be pretty technical, the Treasury said in its review released on Monday that proposed reforms would see banks “use a limited portion of their balance sheets more flexibly”, IE sharing resources across their ringfenced bank and the rest of their operations, and give the Bank of England more flexibility to update and tailor the rules over time.
The £35bn ceiling, at which banks have to ringfence their retail operations, will for example, be reviewed every three years, with a view to uprating it in line with the evolution of banking practices and growth in the deposit base.”
HMT says that the proposed reforms will help by “potentially unlocking up to £80bn of additional financing for UK businesses”.
Ringfencing was introduced after the 2008 financial crisis, in order to protect consumer cash from a bank’s riskier business activities in the coming months. Most of the big banks have lobbied relentlessly for rules to be rowed back, though Barclays has been the one stronghold for maintaining current rules, having invested heavily in their implementation.
Chancellor Rachel Reeves first confirmed that the government would be looking at ringfencing reforms nearly a year ago in July 2025, as part of her Mansion House speech in which she declared that rules and red tape were a”boot on the neck” of business and risked “choking off” innovation.
Things had gone quiet since, but banks were heartened last week to hear in the Kings Speech that the so-called Enhancing Financial Services Bill – which was expected to include the ringfencing changes – was due to be put through parliament.
The launch date of the consultation is currently TBC…