18th May 2026
The IMF raised its UK growth forecast mainly because the economy has recently shown more strength than expected, despite global shocks. The Fund now expects 1% growth instead of 0.8% for 2026, and it attributes this upgrade to several concrete factors.
Why the IMF Upgraded the UK Forecast
Stronger‑than‑expected recent growth — The UK economy grew 0.6% in Q1 2026, making it the fastest‑growing G7 economy so far this year. This surprised forecasters and showed the UK entered current global shocks with “more momentum than expected.”
Economic resilience — The IMF repeatedly said the UK “remained resilient” despite the Iran war and global uncertainty. Retail and construction rebounded, and earlier data revisions showed stronger underlying performance.
No need for further interest‑rate hikes — Although energy prices are pushing inflation up temporarily, the IMF believes the Bank of England can keep rates steady and still return inflation to target by 2027. That stability supports growth.
Government fiscal strategy seen as credible — The IMF said the UK’s medium‑term plan to reduce borrowing while maintaining growth‑friendly spending “strikes a good balance,” which helps market confidence.
Pre‑war economic momentum — The IMF noted that the UK had built up momentum before the Iran conflict, and this carried into 2026, justifying the upward revision.
But the IMF also warned of risks
Even with the upgrade, the IMF stressed that:
The Iran war could still hit growth via higher energy and food prices.
Domestic political uncertainty could weaken investment and consumer confidence.
The UK’s forecast went up because recent data showed the economy performing better than expected, giving the IMF confidence to revise growth upward — but the outlook remains fragile due to geopolitical and domestic risks.
UK GDP grew 0.6% in Q1 2026, and the data from the ONS shows all major sectors contributed, with services doing most of the heavy lifting.
Breakdown of UK Q1 2026 GDP Growth (0.6%)
Services sector — +0.8% (largest contributor)
Services drove the majority of growth, with 11 of 14 subsectors rising. Key contributors:
Wholesale & retail trade — +2.0%, the single biggest positive subsector.
Motor vehicle repair — part of the strong retail‑related uplift.
Accommodation & food services — contributed positively (ONS notes broad-based service growth).
Negative drag: Administrative & support services — –1.0%, mainly due to drops in rental/leasing and employment services.
Construction sector — +0.4%
Construction grew modestly, but the picture was mixed:
Repair & maintenance — +3.4%, with private housing R&M up 4.1%.
New work — –1.9%, dragged down by private new housing (–2.6%).
Overall, construction remains 1.3% below the level a year earlier.
🏭 Production sector — +0.2%
Production output rose slightly, with important internal differences:
Manufacturing — +0.8%, the main driver of production growth.
Electricity, gas & steam — +0.6%.
Mining & quarrying — –4.5%, a major negative contributor.
Water supply & waste management — –0.5%.
The UK’s Q1 performance was broad-based, but services—especially retail—were the standout engine of growth. Manufacturing also surprised on the upside, while construction showed resilience despite weakness in new housing.
The IMF upgraded its UK growth forecast because the economy has recently performed better than expected and entered current global shocks with more momentum than forecasters assumed. The Fund now expects 1% growth in 2026 instead of 0.8%, and its explanation is clear across multiple reports.