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The reversal of the downgrades to economic forecasts initially made by the US-Iran means that the UK is expected to have the second fastest growing economy in the G7 along with Germany.
But growth is estimated to slow to 1.2% in 2027 due to higher energy prices and long-term interest rates weighing on household spending and business investment.
Healey acknowledged that the wars in the Middle East and Europe are “hitting people in Britain and around the world”, but added that “Britain’s economy is showing strong international resilience”.
When the economy grows, companies tend to invest more, more jobs are created and people tend to feel better on average. The opposite can occur when the economy stagnates or shrinks.
Economists have suggested Healey faces having to find £35 billion to avoid cuts to public spending while meeting defense promises in his first budget.
On Tuesday, the Resolution Foundation called on the chancellor to make “repairs” to public finances, but said well-targeted support was needed for those “struggling to heat their homes”.
“The challenge of bringing down further lending needs to be paired with the urgent need for fresh living cost support to help families facing a difficult winter,” the think tank said.
Andrew Griffith, Conservative shadow chancellor, said if Healey achieves “more tax increases” in his budget, “he will choose slower growth and workers will pay for it”.
Burnham has pledged to create “good growth in every postcode” as part of his plans to give more control to nations and regions, but his strategy has been criticized within his own party.
The IMF said households are likely to continue to feel the pinch of rising prices, with inflation expected to average 3.3% this year and remain above the Bank of England’s 2% target in 2027 at 2.8%.
The bank itself has predicted that inflation could rise above 4% at the start of next year – making it more likely that interest rates will rise.
Healey is expected to meet with other finance ministers at the IMF’s annual meeting in Bangkok, Thailand on Tuesday to discuss how the economic impact of the Middle East and European conflicts can be limited.
The IMF said the global economy has shown a “remarkable capacity to absorb shocks” not only from the current Middle East conflict, but also from the Covid pandemic and Russia’s invasion of Ukraine.
