UK growth forecast upgraded, but energy prices and interest rates threaten recovery

Britain has received a modest economic reprieve, with the IMF upgrading its 2026 growth forecast from 1% to 1.3%. But the good news may not last: growth is expected to slow to 1.2% in 2027 as higher energy prices and interest rates squeeze household spending and business investment. Inflation is forecast to average 3.3% this year, remaining above the Bank of England’s 2% target next year. Meanwhile, the government faces pressure to balance spending promises against rising borrowing costs, although the UK is projected to have the G7’s lowest annual borrowing in 2031.

UK growth forecast upgraded but energy prices and rates to hit in 2027 - BBC News

1. Examine how higher interest rates could reduce economic growth in the UK.

2. Assess how higher energy prices could affect the UK’s rate of inflation.

3. Discuss whether the UK government should prioritise reducing its budget deficit over supporting economic growth.