IMF upgrades outlook for UK as AI drives growth spurt

AI is driving a growth spurt in the UK, according to new IMF forecasts that show Britain’s outlook has improved more than almost any other major economy over the past six months.

In its latest World Economic Outlook, the fund said UK GDP was set to grow by 1.3 per cent in 2026 — an upgrade of 0.5 percentage points from its forecast in April, even though the energy shock unleashed by the Iran war has lasted longer than initially expected.

The fund believes the UK is emerging as one of the winners of the tech boom, with growth supported by AI-related investment and exports. The only other G7 economy whose outlook has improved as much since April is Germany, where exporters are also benefiting from the global AI build-out.

UK businesses are also proving better able to cope with energy and trade disruption than in the past. The IMF said that businesses around the world had diversified supply chains and become less reliant on oil or other inputs such as fertiliser.

The global outlook was “highly uneven across countries”, said Silvana Tenreyro, IMF chief economist, noting that despite geopolitical turmoil, “technology-related exports and investments give some countries a cushion”.

The fund’s upgrade to the UK’s outlook reflects recent data showing that GDP grew by 0.5 per cent in the second quarter of 2026, building on an expansion of 0.6 per cent in the first quarter.

In recent years, the UK economy has repeatedly begun the year with a growth spurt that fizzled out as autumn and the uncertainties of the annual Budget approached. But economists are increasingly confident that this year’s data reflect genuine resilience rather than the typical seasonal pattern.

They note in particular that business investment has picked up sharply and is concentrated in areas related to AI — software, hardware, data centres and infrastructure — while output has grown strongly in areas such as programming, consultancy and professional services, which are well placed to advise on the AI rollout.

UK chancellor John Healey welcomed the IMF’s forecast, saying it showed Britain was showing “strong international resilience” in the face of the Middle East conflict and noting that the IMF also expected the UK to have the lowest deficit in the G7 by 2031.

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But the fund’s upgrade will be of limited comfort to Healey as he prepares to deliver his first Budget, as the economy is about to be tested by a fresh burst of inflation from the energy shock.

“The [global] economy has been resilient, but that resilience is reaching its limits,” Tenreyro warned.

The fund expects UK GDP growth of 1.2 per cent in 2027, a slight downgrade from its April forecast, and well below the 1.6 per cent expansion the UK’s Office for Budget Responsibility was expecting in March, when it last issued fiscal forecasts.

Jack Meaning, chief UK economist at Barclays, said at a pre-Budget event hosted by the Institute for Fiscal Studies that if the recent pace of tech-related investment were to continue, it could make “a material contribution to UK growth in the coming years”. But he said that in practice, higher UK interest rates and inflation were likely to slow the pace of the AI boom.

In the longer term, Meaning added, the benefits of AI would depend on how far its adoption led to lasting productivity gains. A rush of capital investment would boost the level of GDP initially, he noted, but only a step change in productivity would change the UK’s long-term rate of growth.