UK growth upgraded but energy prices and rates to bite in 2027

The UK economy is forecast to grow by more than previously expected this year before higher energy prices and interest rates hit growth in 2027, the International Monetary Fund (IMF) has said.

Economies across the world have proved more resilient to the energy price shock caused by the US-Iran war, the IMF said, but it warned the economic fallout from the conflict remained "highly uncertain".

Healey is making the final preparations to Andy Burnham's new-look government's tax and spending plans, which will be announced on 28 October.

But IMF Chief Economist Silvana Tenreyro told BBC News on Tuesday that the UK's process of managing its debts is now leading the major G7 economies.

The organisation said the UK is one of the only major economies on course to stabilise levels of national debt. It projects the UK will reduce its annual borrowing by nearly four percentage points of GDP from 2025 to 2031, significantly more than the rest of the G7, many of which are increasing their deficit over this time period.

Asked if the UK was one of the countries the IMF was telling to reduce borrowing, Tenreyro said that the country had begun the process already and should "stay the course".

The reversal of downgrades to economic forecasts made at the start of the US-Iran war, mean the UK is expected to have the second-fasted growing economy in the G7 along with Germany.

Healey acknowledged that wars in the Middle East and Europe were "hitting people in the UK and around the world", but added that "Britain's economy is showing strong international resilience".

Economists have suggested Healey faces having to find £35bn to avoid cuts to public spending while meeting defence promises in his first Budget.

"The challenge of continuing to bring down borrowing must be paired with the pressing need for fresh cost of living support to help families facing a difficult winter ahead," the think tank said.

Burnham has pledged to create "good growth in every postcode" as part of his plans to giving nations and regions more control, but his strategy has faced criticism inside his own party.

The Bank itself has predicted inflation could rise above 4% at the beginning of next year - making it more likely that interest rates will rise.