LONDON, UNITED KINGDOM / RankWire.AI / – While the UK economy avoids entering recession, easing investment and hiring activity have heightened concerns over its future expansion prospects. EY projects gross domestic product to grow by 0.9% in 2026, revising upward its May estimate by 0.1 percentage points. The firm also forecasts a 1.2% increase in 2027. Its central scenario assumes the Strait of Hormuz reopens by September, although shipping volumes remain below typical levels. Energy costs now play a central role in discussions about the UK’s economic trajectory.
Official data reveal GDP expanded by 0.6% in the first quarter, following a 0.1% rise in late 2025. Economic output was 0.9% higher than its level a year earlier. Services grew by 0.8%, contributing the most to quarterly growth. Household consumption also increased by 0.6% during the same period. A technical recession requires two consecutive quarterly declines, but the latest complete figures do not meet that criterion.
The Strait of Hormuz facilitates a large share of worldwide oil and liquefied natural gas shipments. Although Britain’s direct dependence on Gulf energy supplies remains limited, global price fluctuations influence domestic fuel costs and production expenses. Producer input prices climbed 7.3% over the year through June, with crude oil input costs rising by 42.3% during the same period. Factory-gate prices increased by 3.5%, indicating that higher costs have already impacted manufacturers before products reach retail outlets.
Inflationary pressures influence interest rate decisions
Consumer price inflation slowed to 2.6% in June from 2.8% in May. Nonetheless, the rate remains above the Bank of England’s 2% target. Motor fuel prices are 21.3% higher than they were a year earlier. On July 29, the Bank of England maintained the Bank Rate at 3.75%, following a 6-3 vote. Three policymakers favored raising it to 4%. The division underscores ongoing concerns about inflation despite modest economic growth.
Early third-quarter business surveys presented mixed signals regarding activity. The manufacturing purchasing managers’ index decreased to 51.9 in July from 52.5 in June, marking a four-month low, although still above the expansion threshold of 50. Meanwhile, a preliminary composite index increased to 52.1 from 49.3 in June, reflecting renewed private-sector growth across both manufacturing and services sectors.
Investment and employment growth stay muted
Business investment rose by 0.9% in the first quarter after falling 3% over the previous three months. Despite this quarterly increase, investment levels remained 1.3% below those of the same period last year. EY predicts a 0.7% decline in business investment for 2026, contrasting with its earlier forecast of no change. The firm anticipates growth rates of 1.8% in 2027 and 2.6% in 2028, both lower than previous estimates.
Between April and June, UK vacancies decreased by 7,000 to 712,000, representing a quarterly drop of 0.9% and an annual decline of 2.5%. Job openings declined across 10 of the 18 sectors monitored, but the change fell within the survey’s confidence interval. Meanwhile, regular pay increased by 3.4% from March through May. Current data show positive economic output amid above-target inflation, weaker hiring rates, and business investment still below last year’s levels.
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