Britain needs to keep deficit reduction on track, IMF says By David Milliken BANGKOK, Oct 13 - Britain needs to ensure it sticks to its deficit reduction plans as government borrowing soars elsewhere, the International Monetary Fund warned on Tuesday, just over two weeks before finance minister John Healey delivers his first annual budget.

The IMF singled out Britain for praise as the only major advanced economy to have set out clear plans to reduce government borrowing over the coming years.

But new IMF chief economist Silvana Tenreyro – who served as a Bank of England policymaker from 2017 to 2023 – said it was important that there was no slippage in the face of higher debt interest costs and pressure to spend more on defence and energy subsidies.

"The UK has already started the (fiscal) consolidation path.... It is on that trajectory, and the message for the UK is simply stay the course and continue on that trajectory," Tenreyro told a press conference in Bangkok, where the IMF is holding its annual meeting.

The government, which ran a budget deficit of 4.4% of GDP last year, aims to balance day-to-day spending with tax revenue by the 2029/30 financial year – but previous governments regularly failed to meet similar goals.

HIGHER ENERGY PRICES AND DEBT COSTS TO WEIGH ON UK Higher energy costs and a rise in long-term interest rates will weigh on British economic growth next year, the IMF said, even after it revised up its forecast for expansion this year.

Despite the deficit reduction plans, Britain's government borrowing costs are the highest in the Group of Seven advanced economies and last week rose to their highest since 1998 as part of a global selloff in debt.

The IMF predicts Britain's economy will grow 1.3% this year, up from predictions of 1.0% in July and 0.8% in April, before slowing slightly to 1.2% growth in 2027, putting Britain in the middle of the pack among major advanced economies.

"Higher energy prices and long-term interest rates (will) weigh on consumption and investment," the IMF said in its section on Britain in an update of its World Economic Outlook.

Healey said the forecasts showed the British economy was demonstrating strong resilience, despite the conflicts in the Middle East and Ukraine.

The BoE predicts the global surge in energy prices will push inflation to a peak above 4% early next year.

BOE'S GREENE SAYS FORECASTS REINFORCE CASE FOR RATE RISE BoE policymaker Megan Greene – who has voted for higher interest rates at BoE meetings since June – said the IMF's forecasts reinforced her view that the 3.75% policy interest rate was not doing much to counter inflation.

"I'm not surprised that our GDP forecast has been revised upwards by the IMF. To my mind, this reflects the level of restrictiveness of the stance of monetary policy, where I just don't think we're that restrictive," Greene told the Atlantic Council think tank on the sidelines of the IMF meeting.

The IMF forecasts British inflation will average 3.3% in 2026 and 2.8% in 2027, close to its predictions for the euro zone and the United States.

Central banks globally needed to be quicker to raise interest rates where public confidence in their inflation targets had weakened, and resist any pressure to tolerate above-target inflation or excessive borrowing, the IMF said.

Unlike the European Central Bank or the US Federal Reserve, the BoE has not raised rates since the outbreak of the US-Iran war in February, despite inflation being above its 2% target for almost all of the past five years.

Financial markets now price in a 90% chance of a BoE rate rise after its November meeting and see a further three rate rises in 2027, though forecasts for similar tightening earlier this year proved premature.