LONDON, UNITED KINGDOM / RankWire.AI / – Recent forecasts highlight increasing pressure on the UK economy from global energy disruptions, although the country remains outside of recession. EY has upgraded its growth forecast for 2026 to 0.9% from 0.8% in May, while maintaining its 2027 baseline at 1.2%. This projection assumes the Strait of Hormuz reopens by September, leading to lower tanker traffic. EY’s adverse scenario anticipates a 0.5% growth for this year and a 0.2% contraction in 2027.
Official data indicate that the UK’s gross domestic product grew by 0.6% in the first quarter, following a 0.1% increase in late 2025. The GDP was 0.9% higher compared to the same period last year. The largest quarterly contribution came from services, which expanded by 0.8%. Household consumption also grew by 0.6%. Since a technical recession requires two consecutive quarterly contractions, current official figures do not confirm such a decline.
Energy prices serve as a key factor linking the Iran conflict to the UK’s economic outlook. The Strait of Hormuz facilitates a significant portion of global oil and liquefied natural gas transportation. Consequently, British prices reflect disruptions in international markets, despite the UK’s limited direct reliance on Gulf supplies. Producer input costs increased by 7.3% over the year ending in June. Specifically, crude oil inputs surged by 42.3%, while factory-gate prices rose by 3.5%.
Inflation and interest rates remain high
In June, consumer price inflation slowed to 2.6% from 2.8% in May, yet it stayed above the Bank of England’s 2% target. Prices for motor fuels increased by 21.3% compared to the previous year. The Bank of England maintained the Bank Rate at 3.75% on July 29, with a 6-3 vote. Three policymakers supported raising it to 4%, while the bank indicated that energy effects would push inflation higher later this year.
Economic momentum is also reflected in business surveys. The manufacturing purchasing managers’ index dropped to 51.9 in July from 52.5 in June, marking a four-month low but still indicating expansion. The preliminary composite index increased to 52.1 from 49.3 in June, encompassing both manufacturing and services sectors, and signaling renewed growth in the private sector at the start of July.
Investment and employment growth slow down
Business investment experienced a 0.9% increase in the first quarter after falling 3% in the previous three months. Despite this rise, investment remains 1.3% below its level from the same period last year. EY now projects a 0.7% decline in business investment for 2026, whereas its May outlook had suggested no change. The firm predicts growth of 1.8% in 2027 and 2.6% in 2028, both below earlier estimates.
The latest official survey shows a weakening in labor demand as well. UK vacancies declined by 7,000 to 712,000 during April through June, representing a quarterly drop of 0.9%. While vacancies fell across 10 of 18 industries, these movements remained within the survey’s confidence interval. Meanwhile, regular pay increased by 3.4% annually during March through May. Current data points to positive economic output alongside inflation exceeding targets, softer hiring activity, and business investment below last year’s level.