The International Monetary Fund (IMF) has warned that Andy Burnham’s incoming government has little room for a broad rise in UK public spending as weak growth, higher energy prices and borrowing costs put pressure on the public finances. The IMF warning to Burnham, published on Thursday, 16 July 2026, said any further help for households should be limited, temporary and funded without increasing the deficit.
The intervention comes as the prime minister-in-waiting prepares to take control of Downing Street and faces demands for more money for public services, welfare support and measures to ease the cost-of-living crisis.
However, the IMF did not call for an immediate round of cuts or reject all public investment. It said the existing fiscal strategy broadly strikes the right balance between reducing the deficit, protecting important services and supporting projects that could improve economic growth.
The findings were published after the IMF completed its 2026 Article IV consultation with the UK. These reviews are regular examinations of a member country’s economy and government policies.
The IMF’s recommendations are policy advice. They do not automatically change UK taxes, benefits, pensions or spending plans, and the Government is not legally required to adopt them.
Higher energy prices weaken UK outlook
The IMF expects the British economy to grow by just 1 per cent in 2026, down from growth of 1.4 per cent in 2025.
It said higher energy prices caused by the war in the Middle East were reducing household spending power and increasing costs for businesses. Tighter financial conditions and continued uncertainty were also expected to hold back consumption and investment.
Inflation is forecast to rise above 3.5 per cent towards the end of 2026 before falling back to the Bank of England’s 2 per cent target by the end of 2027.
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A longer disruption to energy supplies could lead to even higher prices. The IMF said stronger inflation could force the Bank of England to keep interest rates higher for longer, making mortgages, loans and business borrowing more expensive.
Against that background, the IMF said additional government support should be “targeted, temporary and budget-neutral”.
In plain terms, this means help should be directed at households most in need, should have a clear end date and should be paid for through savings or revenue from elsewhere rather than extra borrowing.
Burnham faces difficult spending choices
Burnham has said he intends to follow the existing fiscal rules. They require the Government to cover normal day-to-day spending with tax income and to ensure debt is falling as a proportion of the economy within the forecast period.
He has also said his programme will remain consistent with Labour’s 2024 manifesto, which ruled out increases in income tax, National Insurance and VAT for working people.
Those promises could restrict his options if he wants to provide more money for councils, benefits, health services or other departments.
In March, the Office for Budget Responsibility estimated that the Government would meet its day-to-day spending rule with about £24 billion to spare by 2029-30. Bank of America economists later estimated that the margin had fallen to about £19 billion following changes in the economic outlook. These figures are forecasts and could change before the next Budget.
The IMF said the Government should prepare backup measures in case economic growth is weaker than expected or planned savings and tax receipts fail to materialise.
Possible revenue measures identified by IMF staff included applying VAT more widely and reforming property taxes. On spending, it recommended improving efficiency in public services and controlling the rising welfare bill while protecting vulnerable people.
These are recommendations rather than confirmed government policies. Any tax or benefit changes would normally have to be announced by ministers and, where required, approved by Parliament before taking effect.
IMF raises questions over state pension triple lock
The IMF also warned about longer-term costs linked to an ageing population, defence commitments and the transition to cleaner energy. It estimated that these pressures could increase public spending by about 6 per cent of gross domestic product by 2050.
One option suggested by IMF staff was replacing the state pension triple lock with a system that links pension rises to the cost of living.
The triple lock currently increases the basic and new state pensions each year by whichever is highest: average earnings growth, inflation or 2.5 per cent. The IMF did not say that the policy had already been removed, and its recommendation would require a political decision by the Government.
It also suggested better targeting of benefits, greater use of preventative healthcare and possible charges for some health services, provided vulnerable patients were protected.
Such proposals are likely to face political opposition because they could affect pensioners, benefit claimants and people using public services. The IMF said there should be a transparent public debate about the choices involved.
For readers, no tax, pension, benefit or public-service change takes effect because of this IMF report alone. Households should wait for confirmed announcements from Burnham’s government, the Treasury and the Office for Budget Responsibility, particularly when the next Budget and spending plans are published.
