LONDON, UNITED KINGDOM / RankWire.AI / – The UK economy remains out of recession, yet new projections highlight mounting pressure from global energy disruptions. EY increased its growth forecast for 2026 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 relatively low tanker traffic. EY’s pessimistic scenario predicts 0.5% growth for this year and a 0.2% contraction in 2027.
Official data indicate that gross domestic product expanded by 0.6% in the first quarter, following a 0.1% growth in late 2025. The GDP was 0.9% higher than the same period last year. The services sector contributed most to quarterly growth with an increase of 0.8%, while household consumption grew by 0.6%. As two consecutive quarterly declines are necessary to declare a technical recession, current official figures do not meet that criterion.
Energy prices serve as a key link between the Iran conflict and the UK’s economic outlook. The Strait of Hormuz handles a significant portion of global oil and liquefied natural gas shipments. Consequently, UK prices reflect international market disruptions, despite limited direct dependence on Gulf supplies. Producer input costs rose by 7.3% year-on-year until June, with crude oil inputs increasing by 42.3% and factory-gate prices climbing 3.5%.
Inflation and interest rates remain high
Consumer inflation slowed to 2.6% in June from 2.8% in May but stayed above the Bank of England’s 2% target. Motor fuel prices surged 21.3% compared to last year. On July 29, the Bank of England maintained its Bank Rate at 3.75% following a 6-3 vote. While three policymakers favored raising the rate to 4%, the bank indicated that energy influences would push inflation higher later in the year.
Business surveys offer a secondary gauge of economic activity in the UK. The manufacturing purchasing managers’ index decreased to 51.9 in July from 52.5 in June, marking a four-month low but still signaling expansion as it remains above the 50 threshold. Meanwhile, a preliminary composite index increased to 52.1 from 49.3 in June, encompassing both manufacturing and services sectors, and signaling renewed private-sector 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 in the previous three months. Despite this, investment remains 1.3% below its level from a year earlier. EY now anticipates a 0.7% decrease in business investment for 2026, revising its May projection of no change. Looking ahead, EY forecasts growth of 1.8% in 2027 and 2.6% in 2028, both below previous estimates.
The latest official survey shows a slowdown in labor demand. UK vacancies fell by 7,000 to 712,000 during April through June, representing a quarterly decrease of 0.9%. Declines occurred across 10 of 18 industries, although these changes remained within the survey’s confidence interval. Regular pay increased by 3.4% annually from March to May. Current data indicate positive economic output coupled with inflation above target, softened hiring demand, and business investment below last year’s level.