The International Monetary Fund has raised its growth forecast for the UK economy, now projecting gross domestic product to expand by 1% in 2026, up 0.2 percentage points from its April estimate. The upgrade, part of the IMF's July World Economic Outlook update, reflects hopes that the economic fallout from the Iran war may prove less severe than initially feared, and would make the UK the third fastest-growing economy in the G7, behind the US and Canada.

The IMF left its 2027 UK forecast unchanged at 1.3%, expecting inflation to fall back towards the 2% target by mid-2027, with markets now pricing in just one interest rate rise by next spring. Globally, the AI investment boom has helped cushion the impact of costlier energy caused by the conflict, though energy-importing nations outside technology supply chains have been hit hardest. The IMF cautioned that risks remain to the downside, including a resumption of hostilities and a possible sharp correction in AI-driven equity valuations. Incoming prime minister Andy Burnham, expected to take office on 17 July, is likely to inherit a less battered economy but faces early questions over tax and spending ahead of an autumn budget.