As the UK imports more energy than it produces domestically, it is more sensitive to rapid rises in global prices.
But the IMF suggested the Bank of England does not need to raise interest rates, which are currently at 3.75%, this year in response.
“Holding rates for the remainder of the year should be sufficient to bring inflation back to target (2%) by end-2027,” it said.
The IMF did not address the political turmoil which engulfed the government last week following the poor election results for Labour, but said any “domestic uncertainty” could impact growth alongside the Iran conflict.
The upgraded growth forecast was welcomed by Chancellor Rachel Reeves, who said it was “proof” that the government has the “right economic plan”.
“The choices I have made as chancellor mean our economy is in a stronger position as we deal with the costs of the war in Iran,” she said.
Following calls for the Prime Minister, Sir Keir Starmer, to resign last week, Reeves had warned her fellow Labour MPs that “putting our stability at risk when signs of progress are emerging would leave families and businesses worse off”.
The IMF suggested the government’s commitment to its rules on borrowing and reducing the deficit – the amount it borrows in a financial year – would help protect its financial “credibility”.
Luc Eyraud, the IMF’s mission chief to the UK, said markets and investors put a premium on predictable government policy.
“Today’s policymaking is constrained by a more volatile external environment with more frequent and overlapping shocks, a rising public interest bill, in part reflecting market concerns with countries’ elevated debt, and the long-standing challenge of weak productivity growth,” he said.
