LONDON, UNITED KINGDOM / RankWire.AI / – According to EY, the UK economy continues to avoid recession, yet new forecasts indicate mounting pressure from global energy disruptions. The consultancy has increased its 2026 growth projection to 0.9%, up from 0.8% in May, while maintaining its 2027 estimate at 1.2%. This forecast assumes the Strait of Hormuz reopens by September with limited tanker activity. In its adverse scenario, EY anticipates a 0.5% growth this year and a 0.2% contraction in 2027.
Official data reveal that the UK’s gross domestic product grew by 0.6% in the first quarter, following a 0.1% increase at the end of 2025. Compared to the same period last year, GDP is 0.9% higher. The services sector contributed most to quarterly growth, expanding by 0.8%, while household spending increased by 0.6%. Current figures do not suggest a technical recession, as two consecutive quarterly declines are required for such a designation.
Energy costs form the key link between the Iran conflict and the outlook for the UK economy. The Strait of Hormuz handles a significant portion of global oil and liquefied natural gas shipments. Consequently, UK prices are influenced by disruptions in international markets, even though the country’s reliance on Gulf supplies remains limited. Producer input prices rose by 7.3% in the year ending June, with crude oil inputs increasing by 42.3%, and factory-gate prices climbing by 3.5%.
Inflation and interest rates remain high
Consumer inflation eased slightly to 2.6% in June from 2.8% in May, yet it remains above the Bank of England’s 2% target. Motor fuel prices, in particular, were 21.3% higher than a year earlier. The Bank of England held its Bank Rate steady at 3.75% on July 29, with a 6-3 vote. Three policymakers supported an increase to 4%, and officials noted that energy-related factors are expected to push inflation higher later this year.
Business surveys offer a second perspective on the UK’s economic momentum. The manufacturing purchasing managers’ index declined to 51.9 in July from 52.5 in June, marking a four-month low but still above the 50-point threshold indicating expansion. Meanwhile, a preliminary composite index rose to 52.1 from 49.3 in June, encompassing both manufacturing and services sectors, signaling renewed growth at the start of July.
Investment and employment growth slow down
During the first quarter, business investment increased by 0.9%, following a 3% decline over the previous three months. Despite this rebound, investment remains 1.3% below its level from one year earlier. EY now predicts a 0.7% decline in business investment for 2026, down from its May forecast of no change. For 2027, EY expects growth of 1.8%, with a further 2.6% increase projected for 2028, both figures below earlier estimates.
The latest official survey indicates a slowdown in labour demand. UK vacancies dropped by 7,000 to 712,000 during April to June, representing a quarterly decrease of 0.9%. Across 10 of 18 industries, vacancies declined, though these movements were within the survey’s confidence interval. Meanwhile, regular pay rose by 3.4% annually from March to May. The data show positive output figures, but inflation remains above target, and there is evidence of softer hiring demand and lower business investment compared to last year.