LONDON, UNITED KINGDOM / RankWire.AI / – While the UK economy continues to avoid recession, new projections highlight increasing pressure stemming from global energy disruptions. EY has upgraded its 2026 growth estimate to 0.9% from 0.8% in May, maintaining its 2027 forecast at 1.2%. This outlook presumes the Strait of Hormuz reopens by September with limited tanker activity. Conversely, EY’s adverse scenario anticipates a 0.5% growth rate for this year and a 0.2% contraction in 2027.
Official statistics report a 0.6% increase in gross domestic product during the first quarter, following a 0.1% rise in late 2025. The GDP was 0.9% higher than the same period last year. The main driver of quarterly growth was the services sector, which expanded by 0.8%. Household spending also grew by 0.6%. Currently, data do not show two consecutive quarterly contractions, which are necessary to define a technical recession.
The link between energy prices and the UK’s economic outlook is primarily driven by tensions in Iran. The Strait of Hormuz facilitates a significant portion of global oil and liquefied natural gas shipments. As a result, UK prices are influenced by disruptions in international markets, even though the country has limited direct reliance on Gulf supplies. Producer input costs increased by 7.3% in the year to June, with crude oil inputs jumping 42.3% and factory-gate prices rising 3.5%.
Inflation and interest rates remain high
In June, consumer price inflation slowed to 2.6% from 2.8% in May, yet it still exceeds 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 kept its Bank Rate steady at 3.75% with a 6-3 vote. While three policymakers favored an increase to 4%, the bank indicated that energy effects could push inflation higher later in the year.
Economic momentum is also gauged through business surveys. The manufacturing purchasing managers’ index fell to 51.9 in July from 52.5 in June, marking a four-month low but still indicating expansion beyond the 50 threshold. Meanwhile, a preliminary composite index increased to 52.1 from 49.3 in June, encompassing manufacturing and services sectors and signaling renewed private-sector growth at the beginning of July.
Investment activity and employment growth slow down
Business investment registered a 0.9% rise in the first quarter after a 3% decline in the previous three months. Nonetheless, it remains 1.3% below the level from a year earlier. EY now projects a 0.7% decline in business investment for 2026, a downward revision from their May forecast of no change. They anticipate growth of 1.8% in 2027 and 2.6% in 2028, both below earlier estimates.
Demand for labor has also weakened according to the latest official data. UK vacancies decreased by 7,000 to 712,000 during April through June, a quarterly drop of 0.9%. Although vacancies declined across 10 of 18 sectors, the variation remained within the survey’s confidence limits. Meanwhile, regular pay increased by 3.4% annually from March to May. The current figures reveal positive output alongside inflation that exceeds targets, softer hiring trends, and business investments lower than last year’s levels.