LONDON, UNITED KINGDOM / RankWire.AI / – The UK economy continues to avoid recession, yet the deceleration in investment and employment has prompted increased attention on its future expansion prospects. EY projects the gross domestic product to grow by 0.9% in 2026, following a revision upwards of 0.1 percentage points from their May forecast. The firm predicts a 1.2% increase for 2027. Their central scenario assumes the Strait of Hormuz reopens by September, although shipping volumes are expected to stay below typical levels. Currently, energy costs are a focal point in the UK’s economic discussions.
Official data reveal GDP expanded by 0.6% in the first quarter, following a 0.1% rise at the end of 2025. Economic output was 0.9% higher than the same period last year. The services sector grew by 0.8%, making the largest contribution to quarterly growth, while household consumption also increased by 0.6% over the quarter. A technical recession requires two successive quarterly contractions, but the latest comprehensive data do not meet this criterion.
The Strait of Hormuz accounts for a significant portion of global oil and liquefied natural gas shipments. While the UK has limited direct reliance on Gulf energy supplies, fluctuations in global prices influence domestic fuel and production costs. Producer input prices rose 7.3% in the year ending June, with crude oil input costs increasing by 42.3% during the same period. Factory-gate prices increased by 3.5%, indicating that rising costs had already impacted manufacturers before goods reached retail outlets.
Inflation Keeps Up Pressure on Interest Rate Policy
Consumer price inflation slowed down to 2.6% in June from 2.8% in May, yet it remained above the Bank of England’s 2% target. Motor fuel prices were 21.3% higher than a year earlier. The Bank of England maintained the Bank Rate at 3.75% on July 29, following a 6-3 vote. Three policymakers favored raising it to 4%, illustrating ongoing concerns about inflation despite modest economic growth.
Early third-quarter business surveys provided mixed signals regarding activity levels. The manufacturing purchasing managers’ index declined to 51.9 in July from 52.5 in June, marking a four-month low, though still above the 50 threshold that indicates expansion. 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 Hiring Remain Lackluster
During the first quarter, business investment rose by 0.9%, following a 3% decrease in the prior three months. Despite this quarterly growth, investment was still 1.3% below its level from the same period last year. EY predicts a 0.7% decline in business investment for 2026, revising its previous forecast of no annual change made in May. The firm anticipates growth rates of 1.8% in 2027 and 2.6% in 2028, both figures falling short of earlier estimates.
Vacancies in the UK fell by 7,000 to a total of 712,000 over the three months from April through June, representing a quarterly decrease of 0.9% and an annual drop of 2.5%. Reductions in job openings occurred across 10 of the 18 sectors monitored. The quarterly change remained within the survey’s confidence interval. Additionally, regular pay increased by 3.4% from March to May. Current data indicate positive productivity alongside inflation exceeding targets, weaker recruitment, and business investment at levels below those seen last year.