The International Monetary Fund has revised its outlook for the United Kingdom, nudging the 2026 growth estimate up to 1 % from the previously projected 0.8 %. The revision comes amid concerns that the ongoing Middle East conflict is weighing on near‑term prospects, yet the IMF notes the economy has shown more resilience than anticipated.

In its latest Monetary Policy Report, the IMF urged the Bank of England to keep its flagship Bank Rate at 3.75 % for the rest of the year, arguing that such a stance would restrain inflationary pressures stemming from elevated energy costs. The report cautioned that higher headline inflation could push the economy into a period of reduced output, making policy calibration more complex.

However, the fund also emphasised the need for flexibility. “The Bank of England should retain the ability to cut rates if necessary to support the economy,” the IMF said. “Given exceptional uncertainty, the Bank should be prepared to adjust the monetary stance in either direction, responding forcefully if second‑round effects prove stronger than anticipated.”

The IMF’s guidance reflects a shift from earlier expectations that the Bank of England would maintain or even raise rates this year. It now recommends a data‑driven, meeting‑by‑meeting approach, stressing clear communication of policy decisions.

While the energy price shock is expected to delay the return to the 2 % inflation target until roughly the end of 2027, the IMF projects that once the shock subsides, growth should rebound in the second half of 2027 and stabilize near potential levels in the medium term.

These updated forecasts come as recent quarterly data showed a 0.6 % expansion in the first quarter, surpassing analysts’ expectations and underscoring the economy’s current resilience.