IMF Raises UK Growth Forecast and Backs Reeves’s Deficit Reduction Plans; Bonds Recover After Sell-Off – as It Happened

Why It Matters

A higher growth outlook eases pressure on the UK’s fiscal consolidation, supporting lower borrowing costs and bolstering confidence in Reeves’ reform agenda.

Key Takeaways

• IMF lifts UK 2026 growth forecast to 1.0%, up from 0.8%.
• Reeves praised for balancing deficit cuts with growth‑friendly spending.
• UK 30‑year bond yields fall to 5.76% after oil price dip.
• FTSE 100 gains 1.26% as utilities lead rally.
• Ring‑fencing reforms could free up £80 bn financing for businesses.

Pulse Analysis

The IMF’s upward revision of the United Kingdom’s 2026 growth outlook reflects a nuanced reading of recent macro‑data. While the Iran‑related oil shock continues to weigh on global inflation, the UK’s 0.6% first‑quarter expansion and lingering pre‑war momentum convinced fund economists to nudge the forecast from 0.8% to 1.0%. This modest lift still falls short of the 1.3% target set earlier in the year, but it signals that the economy’s resilience may be stronger than feared, giving policymakers a slightly larger buffer for fiscal manoeuvring.

Investors quickly translated the IMF’s optimism into market action. The FTSE 100 rallied 1.26%, led by utilities such as Centrica and National Grid, while gilt yields retreated, with the 30‑year benchmark easing to 5.76% after oil prices fell on news of a potential US‑Iran sanction waiver. Lower yields reduce the cost of borrowing for both the Treasury and corporates, reinforcing the narrative that the UK can sustain its deficit‑reduction path without triggering a credit crunch. The bond market’s response also underscores the sensitivity of UK financing conditions to external energy shocks and geopolitical developments.

Beyond the headline growth number, the IMF’s assessment raises deeper fiscal questions. Chancellor Rachel Reeves received commendation for striking a “good balance” between deficit trimming and growth‑friendly spending, yet the Fund warned that the pension triple lock and other entitlement pressures may become unsustainable. Simultaneously, the Treasury’s pending ring‑fencing reforms aim to unlock up to £80 bn of additional financing for businesses, potentially spurring investment that could close the UK‑US gap in capital spending. Together, these policy threads suggest a pivot toward a more flexible fiscal framework that supports growth while navigating the long‑term challenges of an ageing population, defence spending, and the climate transition.