LONDON, UNITED KINGDOM / RankWire.AI / – In the UK, the economy remains resilient outside a recession, with new forecasts indicating increased pressure from global energy disruptions. EY has revised its 2026 growth outlook upward to 0.9% from 0.8% in May, while maintaining its baseline for 2027 at 1.2%. This projection presumes the Strait of Hormuz reopens by September with limited tanker traffic. EY’s adverse scenario suggests growth of 0.5% for this year and a slight contraction of 0.2% in 2027.
Recent official data reveal that GDP grew by 0.6% in the first quarter, following a 0.1% increase in late 2025. The figure was 0.9% higher than the same period last year. The service sector contributed most to quarterly growth, expanding by 0.8%, alongside household consumption which rose by 0.6%. As two consecutive quarterly declines are required to define a technical recession, current official statistics do not indicate such a downturn.
A key factor connecting the Iran conflict to the UK’s economic outlook is energy prices. The Strait of Hormuz accounts for a significant share of global oil and liquefied natural gas shipments. Consequently, UK prices are influenced by disruptions in international markets, despite the country’s limited direct dependence on Gulf supplies. Input costs for producers increased by 7.3% in the year ending June, with crude oil inputs rising by 42.3%, and factory-gate prices climbing 3.5%.
Inflation and interest rates stay high
In June, consumer inflation slowed slightly to 2.6% from 2.8% in May, yet it remains above 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 maintained the Bank Rate at 3.75% following a 6-3 vote, with three policymakers advocating for an increase to 4%. The bank noted that energy-related factors would likely push inflation higher later this year.
Business surveys offer another perspective on the UK’s economic momentum. The manufacturing purchasing managers’ index declined to 51.9 in July from 52.5 in June, marking a four-month low, but still above the 50-point threshold that signifies expansion. Meanwhile, a preliminary composite index rose to 52.1 from 49.3 in June, reflecting growth in both manufacturing and services sectors at the start of July.
Investment and employment growth slow down
Business investment increased by 0.9% in the first quarter after falling by 3% during the previous three months. Despite this rise, investment levels are still 1.3% below those of the same period last year. EY now anticipates a 0.7% decline in business investment for 2026, revising its May forecast of no change. It projects growth rates of 1.8% in 2027 and 2.6% in 2028, both lower than earlier estimates.
The latest official survey also indicates a slowdown in labor demand. UK vacancies decreased by 7,000 to 712,000 between April and June, representing a quarterly decline of 0.9%. Declines were observed across 10 of 18 industries, though these shifts fell within the survey’s confidence interval. Meanwhile, average earnings grew by 3.4% year-over-year from March to May. The data portrays a picture of positive output amid above-target inflation, softer hiring demand, and business investment remaining below last year’s levels.