LONDON, UNITED KINGDOM / RankWire.AI / – While the UK economy remains outside the technical definition of recession, signs of softer investment and employment expansion have heightened concerns over its growth prospects. EY projects the gross domestic product to increase by 0.9% in 2026, revising its May forecast upward by 0.1 percentage points. The firm also anticipates a 1.2% expansion in 2027. Its central scenario presumes the Strait of Hormuz reopens by September, though shipping volumes are expected to stay below normal levels. Energy prices are now at the forefront of discussions surrounding the UK economy.
Official statistics reveal GDP grew by 0.6% in the first quarter following a 0.1% rise at the end of 2025. Economic output remained 0.9% higher than a year earlier. The services sector expanded by 0.8%, contributing most significantly to quarterly growth. Meanwhile, household spending increased by 0.6% during this period. A technical recession is characterized by two consecutive quarterly contractions; however, the latest data do not satisfy this condition.
The Strait of Hormuz plays a vital role in global oil and liquefied natural gas shipments. Although the UK depends minimally on Gulf energy supplies directly, fluctuations in global prices influence domestic fuel costs and production expenses. Producer input costs rose by 7.3% in the 12 months through June, with crude oil input prices jumping 42.3% over the same span. Factory-gate prices increased by 3.5%, indicating that higher production costs have reached manufacturers before goods are sold in stores.
Inflation Sustains Pressure on Interest Rate Policies
In June, consumer price inflation eased to 2.6% from 2.8% in May. Nonetheless, it remains above the Bank of England’s 2% target. Fuel prices for vehicles were 21.3% higher than they were a year earlier. On July 29, the Bank of England maintained its Bank Rate at 3.75%, following a 6-3 vote. Three policymakers favored raising it to 4%. This split underscores ongoing worries about inflation despite moderate economic growth.
Early third-quarter business surveys show a mixed outlook on activity. The manufacturing purchasing managers’ index fell to 51.9 in July from 52.5 in June, marking a four-month low but still staying above the 50-point threshold that indicates expansion. Meanwhile, a preliminary composite index increased to 52.1 from 49.3 in June. This broader measure, encompassing both manufacturing and services, points to renewed private-sector growth.
Investment and Hiring Remain Modest
Business investment rose by 0.9% in the first quarter following a 3% decline in the previous three months. Despite this quarterly increase, investment levels still lagged 1.3% behind the same period last year. EY forecasts a 0.7% decrease in business investment for 2026, contrasting with its May projection of no change. The firm predicts growth rates of 1.8% in 2027 and 2.6% in 2028, both lower than previous estimates.
During the three months from April through June, UK vacancies decreased by 7,000 to 712,000. This represented a 0.9% quarterly drop and a 2.5% decline compared to the previous year. Job openings declined across 10 of the 18 sectors monitored, although the quarterly change remained within the survey’s confidence bounds. Meanwhile, regular pay rose by 3.4% from March to May. Current data reflect positive economic output amid above-target inflation, weaker hiring activity, and business investment below last year’s levels.