LONDON, UNITED KINGDOM / RankWire.AI / – The UK economy remains outside recession, but softer investment and hiring have increased scrutiny of its growth outlook. EY expects gross domestic product to expand 0.9% in 2026 after raising its May projection by 0.1 percentage point. The firm forecasts 1.2% growth for 2027. Its central outlook assumes the Strait of Hormuz reopens by September, while shipping volumes remain below normal. Energy costs now sit at the center of the UK economic debate.
Official figures show GDP grew 0.6% during the first quarter after increasing 0.1% in late 2025. Economic output stood 0.9% above its level one year earlier. Services expanded 0.8% and provided the largest contribution to quarterly growth, while household consumption also rose 0.6% during the period. A technical recession requires two consecutive quarterly contractions; the latest complete data do not meet that definition.
The Strait of Hormuz carries a significant share of global oil and liquefied natural gas shipments. Britain has limited direct dependence on Gulf energy supplies, but global prices influence domestic fuel and production costs. Producer input prices climbed 7.3% in the year through June, with crude oil input costs increasing 42.3% over the same period. Factory-gate prices rose 3.5%, indicating that higher costs reached manufacturers before goods entered shops.
Inflation Maintains Rate Hike Pressure
Consumer price inflation slowed to 2.6% in June from 2.8% in May, but the rate remained above the Bank of England’s 2% target. Motor fuel prices stood 21.3% higher than one year earlier. The Bank of England kept Bank Rate at 3.75% on July 29 after a 6-3 vote, with three policymakers supporting an increase to 4%. This split underscored ongoing concerns about inflation despite modest economic growth.
Business surveys offered mixed signals about activity at the start of the third quarter. The manufacturing purchasing managers’ index fell to 51.9 in July from 52.5 in June, marking a four-month low, yet remaining above the 50 level indicating expansion. Meanwhile, the preliminary composite index rose to 52.1 from 49.3 in June, reflecting renewed private-sector growth across both manufacturing and services sectors.
Investment and Hiring Remain Weak
Business investment increased 0.9% during the first quarter after dropping 3% in the previous three months. Despite this quarterly rise, investment was still 1.3% lower than its level one year earlier. EY anticipates a 0.7% decline in business investment across 2026, contrasting with its May forecast of no annual change. The firm projects growth rates of 1.8% in 2027 and 2.6% in 2028, both below earlier estimates.
During the three months from April through June, UK vacancies decreased by 7,000 to 712,000, representing a 0.9% quarterly decline and a 2.5% annual drop. Job openings fell across 10 of the 18 industries measured, with the quarterly movement staying within the survey’s confidence interval. Additionally, regular pay increased 3.4% during March through May. Current data show positive output amid above-target inflation, weaker recruitment, and business investment below last year’s levels.