LONDON, UNITED KINGDOM / RankWire.AI / – Amid ongoing global uncertainties, the UK economy continues to avoid recession, although recent forecasts highlight mounting challenges from worldwide energy disruptions. EY increased its projection for 2026 growth to 0.9%, up from 0.8% in May, while maintaining its baseline for 2027 at 1.2%. This forecast presumes the Strait of Hormuz reopens by September with relatively low tanker traffic. EY’s adverse scenario suggests 0.5% growth this year and a contraction of 0.2% in 2027.
Official data reveal that gross domestic product expanded by 0.6% in the first quarter, following a 0.1% increase in late 2025. Compared to the same period last year, GDP stands 0.9% higher. The services sector grew by 0.8%, providing the largest contribution to quarterly expansion. Household consumption also saw a 0.6% rise. Since a technical recession requires two consecutive quarterly declines, the current official figures do not indicate one.
The link between energy costs, the Iran conflict, and the UK’s economic outlook remains prominent. The Strait of Hormuz handles a significant portion of global oil and liquefied natural gas shipments. Consequently, UK prices are influenced by disruptions in global markets despite limited direct dependence on Gulf supplies. Producer input prices increased by 7.3% year-on-year as of June, with crude oil inputs surging by 42.3%, and factory-gate prices rising by 3.5%.
Inflation and interest rates remain high
Consumer inflation dropped to 2.6% in June from 2.8% in May, yet it still exceeds 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%, with a 6-3 vote. Three policymakers supported increasing it to 4%, while the bank noted that energy influences would push inflation higher later this year.
Survey data from the business sector offer additional insights into UK economic activity. The manufacturing purchasing managers’ index declined to 51.9 in July from 52.5 in June, marking a four-month low but remaining above the 50-point threshold indicating expansion. Meanwhile, a preliminary composite index rose to 52.1 from 49.3 in June, combining manufacturing and services. This suggests renewed growth within the private sector at the start of July.
Business investment and employment growth losing steam
Investment by businesses increased by 0.9% in the first quarter after a 3% decline over the previous three months, yet it remains 1.3% below its level from a year earlier. EY’s latest forecast for business investment in 2026 now projects a decline of 0.7%, contrasting with its earlier projection of no change. For 2027 and 2028, EY anticipates growth of 1.8% and 2.6%, respectively, though these estimates are lower than previously predicted.
The latest official data also show weakening demand for labor. UK vacancies decreased by 7,000 to 712,000 during April through June, a quarterly drop of 0.9%. Reductions occurred across 10 of 18 industries, but the changes remained within the survey’s confidence interval. Meanwhile, regular pay increased by 3.4% annually from March to May. Overall, current figures indicate positive economic output, persistent above-target inflation, softer hiring demand, and business investments below last year’s levels.