Introduction: IMF upgrades UK growth outlook for this year

Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.

The International Monetary Fund has increased its growth forecast for the UK this year, but has said that it expects a modest slowdown in 2027 as higher energy prices take effect.

The upgrade will be welcome news for the chancellor, JohnHealey, who will arrive in Bangkok later this week to attend the IMF’s annual meetings for the first time.

The IMF, which publishes its WorldEconomicOutlook twice a year, has predicted GDP growth of 1.3% for the UK this year – up 0.3 percentage points from its most recent update in July.

However, the IMF also warned that high oil prices and rising interest rates meant growth was likely to “edge down” in 2027, “as higher energy prices and long-term interest rates weigh on consumption and investment”.

It cut its UK growth forecast for next year modestly to 1.2%, from 1.3%.

The IMF singled out the UK as among the countries where core inflation – which excludes volatile commodities such as energy – is not expected to return to the 2% target until late next year.

It expects average inflation in the UK to be 3.3% this year, and to remain at 2.8% in 2027 – a challenge for Healey and the prime minister, AndyBurnham, who are promising to offer voters a “breathing space” from rising costs.

It comes just weeks ahead of Healey’s first budget on 28 October. He is expected to focus on plans to devolve more tax revenues to mayoralties, as well as measures to help households cope with higher energy bills ahead of the winter.

The Institute for Fiscal Studies (IFS) warned this week that the budget would be a “work of fiction” unless Healey explained how he would deal with what it said were £35bn of future spending pressures.

The IMF’s growth upgrade follows from the fact that UK GDP has been stronger than expected in early 2026, at 0.6% in the first quarter and 0.5% in the second quarter.

UK government bonds are rallying this morning, after the IMF said it had increased its growth forecast for the country this year.

Yields (which fall when bond prices rise) are down by about 5 basis points for the 10-year gilt, and down by 4 basis points for the 5-year.

There have been some dramatic moves in the global band market recently, largely thanks to the persistently high cost of oil. Last week, the yield on 30-year UK bonds hit 6% for the first time since 1998, before easing slightly later in the day. Its yield has since fallen back to about 5.81%.

Kingfisher, the owner of DIY retailer B&Q, has appointed Sebastian Gundel as its new chief executive.

Gundel, who was most recently chief executive of the German home improvement company OBI, will start on 1 February 2027.

It is a privilege to be appointed chief executive officer of Kingfisher. I have long admired the strength and diversity of Kingfisher’s retail banners, its scale and its strategic ambition. The industry is evolving rapidly, creating significant opportunities across trade, digital, marketplaces, services and new customer propositions. I am much looking forward to working with the team to build on those opportunities and create sustainable long-term value.”

Kingfisher’s current chief executive Thierry Garnier, who has been in his post since 2019, will remain in the job until the end of the year. He is leaving to take the helm at Ahold Delhaize – one of Europe’s largest supermarket chains.

It has been an honour to lead Kingfisher, and I am proud of what our teams have achieved together. Sebastian brings deep sector expertise, a strong customer focus and a proven track record of performance. I am confident that he will successfully lead Kingfisher through its next chapter.”

European stock markets have opened tentatively higher this morning. The UK’s FTSE 100 is leading the pack so far, up by almost 1% – its best performers are the chemicals company Croda International, up 3.6%, and JD SportsFashion, which is up 3.1%.

Premier Inn owner Whitbread is up 2.9% after it urged its shareholders to vote against an activist investor demanding a seat on its board.

The Stoxx Europe 600 is up by a modest 0.3%. The German Dax is up 0.2%, while the French Cac 40 is up by 0.4%.

Europe is being weighed down by some of its biggest tech stocks, including Dutch chip designer ASML, which is down 3.4%, and German Infineon Technologies, which is down by 4.9%.

In some unwelcome news for shoppers – UK grocery price inflation has risen again, up to 2.5% in the four weeks ended on 4 October, up from 2.3% in the prior month, according to new figures from Worldpanel by Numerator.

Fraser McKevitt, head of retail and consumer insight at WorldpanelbyNumerator, said:

With the autumn budget fast approaching, the cost of living continues to weigh heavily on the minds of shoppers. And the cost of filling up a car is only adding to the pressure on household budgets. More than half tell us they’re very or extremely worried about petrol prices, and almost one in three say it’s already taking a real toll on their finances.

Until the chancellor sets out his plans, we expect that caution to carry on showing up at the till, with shoppers leaning more heavily on promotions to keep their grocery spend under control.”

The analysis also found that German discounter Lidl led the way in terms of growth in market share, which now stands at 8.6%, up from 8.2% this time last year. The supermarket reported last week that its sales in Great Britain jumped 10% to more than £13bn this year.

SilvanaTenreyro, the IMF’s economic counsellor, tells CNBC that the world’s economic resilience is being tested. She said:

We’ve seen rerouting of supplies from the Middle East, increased production outside the conflict region, drawdown of inventories, increases in energy efficiency, and switches to other sources of energy, including renewables-all that played out to contain the shock.

But some of these margins are getting really thin, including inventories and efficiency gains. We are reaching those limits, so it’s very important to start replenishing that resilience, and that’s part of the message. We need to replenish supply-side resilience and also fiscal buffers because they have been used up to contain many of the shocks that we’ve had over the past six, seven years.

Susannah Streeter, chief investment strategist at the broker Wealth Club, says the tech-light nature of the FTSE should give it some protection from the AI sell-off in Asia when the UK’s market opens shortly.

The sell-off drama has been concentrated in Asia, with South Korea’s Kospi plunging by around 6% and Japan’s Nikkei falling by more than 2% as semiconductor stocks sold off. The tech-heavy Nasdaq in the US also looks set for another slide as worries creep in about just how much tougher the landscape will be ahead, just as the Fed weighs whether further rate rises will be needed in the months to come.

Advances by China’s CXMT have sent a shiver of apprehension through the market, after the company reported ‘key progress’ on a new cell architecture designed to bolster memory density, with plans for a product rollout. This is a highly competitive field, with rivals SamsungElectronics and SKHynix also hard at work at this edge of innovation. It’s raised big questions yet again about valuations based on bumper earnings projections and the scarcity of products, given the progress of rivals.

With further interest rate rises a possibility, there are also fresh niggles of worry about the huge costs of staying ahead. Tech giants are borrowing billions to fund research and develop new models, and retail investors are also leveraging their bets through loans, which have been helping to support valuations to some extent. A deeper crisis of confidence could set off a wave of selling, which could shake the industry ahead.

Turning back to the UK, on the corporate front this morning…

Whitbread, the owner of Premier Inn, has urged its shareholders to vote against activist investor Corvex Management’s demand for a seat on its board.

The hotel operator has defended its five-year turnaround plan, which has included the closure of some of its branded restaurants and cuts to thousands of jobs. It said it will hold a general meeting on 9 November to consider Corvex’s resolution to add a new board member.

The company also reported that its revenue in the first half of the year nudged up 2% to £1.57bn, but its pre-tax profit fell 62% to £109m.

Meanwhile housebuilder Bellway⁠⁠has said that it expects its profit margins to come under further pressure next year.

The FTSE 250 company said its margin will likely be squeezed by lower completions, ‌rising mortgage rates and ​cost pressures ⁠amid the ​Middle ​East ​conflict.

BP has also updated today, telling investors that it expects its gas marketing and ⁠trading ⁠result ​to be significantly higher ⁠in the third quarter compared ⁠with the ​previous ‌three months.

Upstream production is forecast to be in the range of 2.19 ‌million to 2.24m barrels of ​oil equivalent per day, compared with ⁠about 2.2m barrels ​​in ‌the ​previous quarter.

IMF economic counsellor tells UK to 'stay the course'

Launching the IMF’s report in Bangkok, SilvanaTenreyro, the IMF’s economic counsellor, warned, “the global economy has been resilient, but that resilience is reaching its limits”. She urged policymakers to, “move from just coping, to rebuilding”.

Tenreyro, a former member of the Bank of England’s monetary policy committee, added that the UK “stands out,” from other G7 countries in having a plan to repair its public finances.

“The UK has already started a consolidation process,” she said. “The message for the UK is simply, stay the course”.

The IMF has also warned today that the threat of an AI share price crash rippling out across global markets is putting world financial stability at risk.

In its twice-yearly Global Financial Stability Report, the IMF highlighted the sky-high valuations for AI companies along with their increasing debt pile as one reason that risks in the system are “elevated”.

“The consequences of an AI correction could be global,” it warned. Aside from the US, Asian markets would be most exposed, and the UK and euro area potentially more insulated – though investors with US holdings would be hit.

Looking over at Asian stock markets today, it seems a timely warning – the MSCI index of Asia-Pacific shares is down 2%, its lowest level since late July, led by a sell-off in Asian chip companies.

The South Korean Kospi, which relies heavily on its chip makers Samsung Electronics and SK Hynix, is down 6.6% on fears around an AI slowdown.

The sell-off followed a drop in US chip makers yesterday, after a reports of rapid developments by Chinese rival ChangXin Memory Technologies (CXMT). Japan’s Nikkei 225 index is down 1.9%, while Taiwanese stocks are down 2%.