LONDON, UNITED KINGDOM / RankWire.AI / – As of recent forecasts, the UK economy continues to avoid slipping into recession, yet it faces mounting pressures driven by global energy supply issues. EY has upgraded its 2026 growth projection to 0.9% from 0.8% in May, maintaining its 2027 estimate at 1.2%. This forecast presumes the Strait of Hormuz reopens by September with tanker traffic remaining subdued. EY’s downside scenario anticipates a 0.5% growth for this year and a 0.2% contraction in 2027.
Data from official sources reveal that in the first quarter, gross domestic product increased by 0.6%, following a 0.1% rise in late 2025. The GDP is now 0.9% higher than the same period last year. The services sector contributed most to quarterly growth, expanding by 0.8%. Household consumption also saw a 0.6% rise. Current official figures do not show two consecutive quarterly declines, which would be necessary to define a technical recession.
At the start of the year, energy costs have become a key link between the ongoing Iran conflict and the UK’s economic outlook. The Strait of Hormuz accounts for a significant portion of global oil and liquefied natural gas shipments. As a result, UK prices are influenced by disruptions in international markets, despite the country’s limited direct dependence on Gulf supplies. Producer input prices rose by 7.3% over the year to June, with crude oil inputs surging by 42.3%, and factory-gate prices increasing 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 stays above the Bank of England’s 2% target. Motor fuel prices were 21.3% higher than a year earlier. On July 29, the Bank of England maintained the Bank Rate at 3.75%, with a 6-3 vote. While three policymakers supported an increase to 4%, the bank indicated that energy effects would push inflation higher later this year.
Meanwhile, surveys of business activity offer another perspective on the UK’s economic momentum. 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 rose to 52.1 from 49.3 in June, encompassing manufacturing and services sectors, and signifying renewed private-sector growth at the start of July.
Business investment and employment growth slow down
During the first quarter, business investment increased by 0.9%, recovering from a 3% decline in the previous three months. However, it remains 1.3% below its level from a year earlier. EY now expects a 0.7% decline in business investment for 2026, revising down its May projection of no change. The firm anticipates growth of 1.8% in 2027 and 2.6% in 2028, though these figures are below earlier estimates.
In April through June, the latest official survey indicates a weakening in labor demand, with UK vacancies decreasing by 7,000 to a total of 712,000—a quarterly drop of 0.9%. Although vacancies fell across 10 of 18 industries, the changes remain within the survey’s confidence interval. Meanwhile, average weekly earnings grew by 3.4% annually during March through May. Current data point to positive economic output, but with inflation above target, weaker hiring demand, and business investment below last year’s levels.
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