LONDON, UNITED KINGDOM / RankWire.AI / – The UK economy is expected to keep expanding in 2026, with EY projecting a gross domestic product growth of 0.9% this year and 1.2% in 2027. This outlook comes despite ongoing inflation, investment slowdown, and hiring challenges, which indicate sustained pressure on the economy. The consultancy firm revised its 2026 growth forecast upward by 0.1 percentage point from its May estimate. Its central scenario assumes the Strait of Hormuz reopens by September, though under this assumption, shipping volumes are projected to remain below normal levels.
Official statistics reveal that the UK’s economy grew by 0.6% during the first quarter, following a 0.1% rise in the last quarter of 2025. Year-on-year, output is 0.9% higher. The services sector contributed most to this growth, expanding by 0.8%, while household expenditure increased by 0.6%. These figures do not qualify as a technical recession, as that would require two consecutive quarterly contractions.
Energy markets continue to exert significant influence over UK inflation and production costs. The Strait of Hormuz is responsible for a large share of global oil and liquefied natural gas shipments. Although the UK sources limited energy directly from Gulf suppliers, global prices heavily impact domestic fuel costs. Producer input prices rose 7.3% in the year ending June, with crude oil input costs surging by 42.3%, and factory-gate prices increasing by 3.5%.
Inflation Remains a Key Focus for Monetary Policy
Consumer price inflation eased slightly to 2.6% in June from 2.8% in May, yet it still exceeds the Bank of England’s 2% target. Motor fuel prices soared by 21.3% compared to the previous year. The Bank of England kept its benchmark rate steady at 3.75% on July 29, with a 6-3 vote in favor of no change. Three members preferred an increase to 4%, highlighting ongoing concerns about inflationary pressures.
Early third-quarter business surveys provided mixed signals. The manufacturing purchasing managers’ index declined to 51.9 in July from 52.5 in June, marking a four-month low but still indicating growth since it remains above 50. Meanwhile, a preliminary composite index increased to 52.1 from 49.3, reflecting renewed private-sector expansion in both manufacturing and services sectors for July.
Weakness Persists in Investment and Labour Market Demand
Business investment grew by 0.9% in the first quarter, bouncing back from a 3% decline in the previous three months. Nonetheless, it remained 1.3% below the level recorded a year earlier. EY forecasts a 0.7% decrease in business investment for 2026, compared to its earlier forecast of no change. However, it projects growth of 1.8% in 2027 and 2.6% in 2028, though both are lower than previous estimates.
During the three months ending in June, the UK saw 712,000 job vacancies, a decrease of 7,000 from the prior quarter and 2.5% lower than the previous year. Out of 18 sectors, vacancies fell in 10. Industry-wise, the quarterly decline stayed within the survey’s confidence interval. Meanwhile, regular pay increased by 3.4% from March through May. These figures demonstrate ongoing economic growth amid inflation still above target, subdued hiring, and reduced annual business investment.
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