IMF Wraps Up 2026 Article IV Review With UK

Washington, DC: The Executive Board of the International Monetary Fund (IMF) has completed an Article IV Consultation for the United Kingdom. [1] The authorities have consented to the publication of the Staff Report prepared for this consultation.

The economy was gaining momentum prior to the war in the Middle East. Growth picked up to 1.4 percent in 2025, driven by a recovery in private consumption and investment. The underlying disinflation process continued, with core inflation easing and wage growth moderating. Against the backdrop of declining inflation, the BoE gradually brought the Bank Rate down to 3.75 percent by February 2026. The fiscal stance tightened significantly in FY2025/26, marking the first year of the authorities' medium-term consolidation plan. However, the fallout from the war in the Middle East pushed energy prices higher and has weighed on the outlook.

Growth is projected to slow this year before recovering as the energy shock dissipates. GDP growth is expected to fall to 1.0 percent in 2026, as higher energy prices erode real incomes and tighter financial conditions further weigh on demand. Headline inflation is projected to peak above 3.5 percent toward end-2026, before declining and returning to target towards end-2027. However, the pass-through to core inflation should be more limited, given the weak labor market, slow wage growth, and a negative output gap.

Risks to growth are tilted to the downside. The main risk is that disruptions to energy supply persist. Larger second-round effects on inflation could necessitate a more restrictive monetary stance, tightening credit conditions and slowing growth. Other factors that could hamper the outlook include policy uncertainty and a deteriorating external environment, including further trade tensions and tighter global financial conditions. On the upside, household savings drawdowns and productivity gains from faster-than-expected AI adoption could strengthen growth. Staying the course on deficit reduction and the structural reform agenda will support resilience by providing policy stability that anchors confidence and supports investment.

Executive Board Assessment [2]

They commended the authorities for their prudent policies that have enabled the UK's economic resilience despite repeated external shocks. Directors noted that elevated uncertainty, including from the war in the Middle East, has weakened near‑term prospects while weak productivity gains continue to weigh on long‑term growth. Against this background, Directors underscored the importance of sustaining the reform strategy to provide policy stability, anchor confidence, support investment, and raise productivity and living standards.

Directors concurred that the authorities' fiscal strategy appropriately balances debt stabilization with growth‑friendly spending and welcomed recent changes to the fiscal framework that strengthen fiscal policy predictability. They agreed that the response to the energy shock has been prudent and should remain tightly targeted, temporary, and budget‑neutral. Over the medium to long term, rising spending pressures from ageing, defense, and the energy transition will require difficult choices and greater focus on containing spending growth and enhancing efficiency. In this context, Directors stressed the importance of staying the course on fiscal consolidation and preparing upfront contingency measures in case the outlook deteriorates or delivery falls short.

Directors agreed that monetary policy should remain sufficiently restrictive to prevent higher energy prices from becoming entrenched in core inflation and wages. Given heightened uncertainty, developments should be closely monitored and decisions should remain data‑dependent and be taken meeting by meeting. Directors welcomed the Bank of England's continued efforts to strengthen its communication framework and agreed that the ongoing transition to a repo‑led, demand‑driven liquidity framework should support effective policy transmission.

Directors welcomed that the UK financial system appears resilient while noting the elevated global risks. They positively noted the authorities' leading international role in addressing risks from the nonbank financial sector. Directors supported the authorities' ambition to make the financial sector a stronger engine of investment and productivity. A cautious approach to regulatory reform would be appropriate. Directors looked forward to the forthcoming FSAP as an opportunity for a more detailed assessment. Noting significant progress, they also encouraged continued efforts to strengthen the AML/CFT regime.

Directors welcomed the authorities' structural reform agenda. They agreed that addressing persistent skills shortages, improving labor mobility and migration policies, and enabling artificial intelligence adoption are important priorities for raising productivity and living standards. Noting the reform agenda's ambition and possible implementation challenges, Directors stressed that success hinges on prioritization, sequencing, and sustained implementation supported by transparent monitoring of progress. They also emphasized the importance of strengthening resilience through deeper, more diversified trade ties and continued progress on energy security. Directors commended the authorities for their continued support of multilateral cooperation and leading role in the international financial architecture.

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chair of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .