LONDON, UNITED KINGDOM / RankWire.AI / – The UK’s economy continues to avoid a recession, yet new forecasts indicate mounting pressures from global energy market disruptions. EY has upgraded its 2026 growth projection to 0.9%, up from 0.8% in May, while maintaining its 2027 forecast at 1.2%. This outlook presumes the Strait of Hormuz reopens by September with relatively low tanker traffic. Conversely, EY’s adverse scenario suggests growth of only 0.5% this year and a 0.2% decline in 2027.
Official statistics reveal that gross domestic product increased by 0.6% in the first quarter, following a 0.1% rise in late 2025. The GDP was 0.9% higher than its level a year earlier. The services sector grew 0.8%, making the largest contribution to quarterly expansion. Additionally, household spending went up by 0.6%. Currently, official data do not indicate a technical recession, which requires two back-to-back quarterly contractions.
Energy expenses serve as a key link connecting the Iran conflict to the UK’s economic outlook. The Strait of Hormuz handles a significant share of global oil and liquefied natural gas shipments. As a result, UK prices tend to mirror disruptions in international markets, despite limited direct reliance on Gulf supplies. Producer input prices increased by 7.3% over the year ending in June. Crude oil inputs surged by 42.3%, while factory-gate prices advanced by 3.5%.
Inflation and interest rates stay high
Consumer price inflation eased to 2.6% in June from 2.8% in May. Nonetheless, it remains above the Bank of England’s 2% target. Motor fuel costs were 21.3% higher than a year earlier. The Bank of England maintained its Bank Rate at 3.75% on July 29 with a 6-3 vote. Some policymakers favored an increase to 4%, and the bank explained that energy-related factors would push inflation higher later this year.
Data from business surveys provide an additional gauge of the UK’s economic momentum. The manufacturing purchasing managers’ index declined to 51.9 in July from 52.5 in June. This figure marked a four-month low but still signaled expansion, as it remained above 50. Meanwhile, a preliminary composite index rose to 52.1 from 49.3 in June. This combined index, which includes both manufacturing and services sectors, pointed toward renewed growth in the private sector at the start of July.
Growth in investment and employment show signs of slowing
Business investment increased by 0.9% in the first quarter after dropping 3% in the previous three months. Despite this, investment was still 1.3% below its level from a year earlier. EY’s latest forecast predicts a 0.7% decrease in business investment for 2026, contrasting with its May projection of no change. For 2027 and 2028, EY anticipates growth of 1.8% and 2.6%, respectively, both figures lower than previously estimated.
Demand for labor also softened according to the latest official data. UK vacancies declined by 7,000 to 712,000 during April through June, representing a quarterly drop of 0.9%. Although vacancies fell across 10 of 18 industries, the changes stayed within the survey’s confidence interval. Meanwhile, regular pay increased by 3.4% year-on-year during March through May. The current data indicate positive economic output alongside inflation above target, weaker hiring demand, and business investment that remains below last year’s level.