Professor Joe Nellis is economic adviser at MHA, the accountancy and advisory firm.

The latest IMF World Economic Outlook suggests the UK is edging slowly towards recovery, but warns the path to stability remains narrow. Growth is projected at around 1.3% in 2025, remaining at 1.3% for 2026, as household spending and government investment spending lend support to economic activity.

Global trade frictions, rising borrowing costs, and weak productivity continue to cloud the outlook for the UK economy, but this does not make the UK an outlier — global growth is forecast to slowly decline from 3.3% in 2024, to 3.2% in 2025 and 3.1% in 2026. In this context, the UK would be the 2nd fastest growing economy in the G7, behind the USA.

The inflation picture is less positive, as the UK is projected to have the highest annual average inflation in the G7 economies in 2025 and 2026, at 3.4% and 2.5% respectively, and is expected to remain well above target for several more quarters. That persistence limits the Bank of England’s room to cut interest rates further and complicates the Treasury’s task of stimulating much-needed growth. The silver lining in the IMF’s report is that the UK’s inflationary pressures are largely “temporary,” with the labour market expected to loosen and wage growth to moderate.

The IMF emphasises that the UK’s financial position is stable but remains stretched. Higher debt-servicing costs and slower revenue growth leave little room for fiscal manoeuvre. Any fiscal easing in the Autumn Budget will need to be carefully targeted to avoid reigniting inflation or undermining market confidence.

Overall, the IMF message is clear: the UK economy is improving but still vulnerable. The Budget must balance credibility with compassion — supporting growth and investment while keeping a firm grip on borrowing and inflation expectations.