Chancellor of the Exchequer John Healey has received a warning from the International Monetary Fund ahead of his budget this month: use cost-of-living support “sparingly” or risk reigniting inflation.

In its World Economic Outlook published Tuesday, the global watchdog said debt-burdened countries like the UK should restrict any relief to “targeted and temporary” measures that do not make the job of taming prices more difficult.

“Rebuilding fiscal space is urgent, given elevated debt, higher borrowing costs, multiplying demands on public budgets, and heightened uncertainty,” it said. “Support measures should be used sparingly, designed in a way not to complicate the task of monetary policy, and unwound rapidly as the shock dissipates.”

The UK will grow more than previously thought and is less exposed to the Iran war energy shock than other major economies, the IMF said. However, Britain and others still need to reduce borrowing to stabilize public debt and “contain the immediate risks from inflation.”The call for caution adds to the pressure on Healey, who is said to be preparing a series of time-limited giveaways to help voters with the cost of living at the budget on Oct. 28. On Monday, the Institute for Fiscal Studies urged the chancellor to set out how he would pay for a £35 billion ($46 billion) spending shortfall or lose credibility in financial markets.

The IMF forecast, which assumes Strait of Hormuz reopens in March and is back to normal next October, sees inflation averaging 3.3% this year and 2.8% in 2027. Money markets are expecting the Bank of England to start raising interest rates in November to get inflation back to the 2% target.

The IMF forecasts painted a relatively positive picture for the UK. Growth is near the top of the Group of Seven, inflation is forecast to come under control faster than the US and the European Union, and the UK is close to putting the public finances on a sustainable footing - albeit with debt at a roughly 60-year high of 94% of GDP.

GDP growth was upgraded to 1.3% from 1% for 2026 and cut slightly to 1.2% from 1.3% in 2027 “as higher energy prices and long-term interest rates weigh on consumption and investment.”The net two-year upgrade was the third largest in the G7, behind Germany and Italy, though the UK fares worse on a per-person basis. GDP per head expands 0.7% in 2026 and 0.9% in 2027, the same across the two years as Italy and better only than France.

Charts in the WEO showed that there was little evidence of second-round effects hitting inflation so far, with the core measure that strips out volatile food and energy prices returning to 2% by the end of 2027, six months before the eurozone and the US. Fiscal consolidation would help as it “can moderate demand and complement monetary policy efforts to maintain price stability.”A separate chart showed the UK government is this year expected to reduce borrowing to a level roughly in line with the “debt stabilizing primary balance” that would prevent the debt spiralling upwards. The US, Germany, France and Italy all have a lot more work to do.

However, the fund indicated that more consolidation may be required in the UK as “increasing pressures for spending on defense, among other things,” could derail the fiscal outlook.

“Broad-based fuel subsidies, generalized tax cuts, and price controls should be avoided,” it said. “These measures are typically poorly targeted, fiscally costly, distortionary, and politically difficult to withdraw once introduced.”The IMF said rates are likely to rise in the US and the euro area but there was no suggestion that the BOE will need to follow suit. It has argued that rates at 3.75% are already bearing down on prices.