LONDON, UNITED KINGDOM / RankWire.AI / – The UK economy remains out of recession, but the slowdown in investment and hiring has prompted increased attention on its growth prospects. EY projects that gross domestic product will grow by 0.9% in 2026, upwardly revising its May forecast by 0.1 percentage points. The firm also predicts a 1.2% increase for 2027. Their central scenario assumes the Strait of Hormuz reopens by September, though shipping volumes will stay below typical levels. Energy prices are now at the forefront of the UK economic discussion.
Official data indicates that GDP expanded by 0.6% in the first quarter, following a 0.1% increase in late 2025. Economic output was 0.9% higher than its level a year earlier. The services sector grew by 0.8%, making the largest contribution to quarterly growth. Household consumption also rose by 0.6% during this period. A technical recession would require two consecutive quarters of contraction, but the latest complete data do not meet this criterion.
The Strait of Hormuz accounts for a significant portion of global oil and liquefied natural gas shipments. Although the UK depends minimally on Gulf energy supplies directly, global prices influence domestic fuel and production costs. Producer input prices increased by 7.3% in the year ending June. Crude oil input costs rose by 42.3% over the same period. Factory-gate prices advanced by 3.5%, indicating that higher costs had already impacted manufacturers before goods reached retail outlets.
Inflation Pressures Maintain Expectations of Higher Interest Rates
Consumer price inflation decreased to 2.6% in June from 2.8% in May. Nonetheless, this rate remains above the Bank of England’s 2% target. Motor fuel prices were 21.3% higher than a year earlier. The Bank of England maintained the Bank Rate at 3.75% on July 29, following a 6-3 vote. Three policymakers favored raising it to 4%. This split underscores ongoing concerns about inflation despite moderate economic growth.
Business surveys provided a mixed picture at the start of the third quarter. The manufacturing purchasing managers’ index dropped to 51.9 in July from 52.5 in June, marking its lowest point in four months. However, it still signaled expansion, as readings above 50 indicate growth. Meanwhile, a preliminary composite index increased to 52.1 from 49.3 in June. This broader indicator, covering both manufacturing and services, signaled renewed private-sector expansion.
Business Investment and Hiring Trends Remain Weak
Business investment grew by 0.9% in the first quarter after a 3% decline in the previous three months. Despite this quarterly increase, investment levels were still 1.3% below their year-earlier figures. EY anticipates a 0.7% decline in business investment across 2026, revising its May forecast of no change. The firm predicts growth rates of 1.8% in 2027 and 2.6% in 2028, both lower than its previous estimates.
During April to June, UK vacancies dropped by 7,000 to a total of 712,000. This represented a quarterly decrease of 0.9% and an annual decline of 2.5%. Job openings fell in 10 of the 18 sectors measured. The quarterly change stayed within the survey’s confidence interval. Meanwhile, regular pay increased by 3.4% from March through May. Current figures show positive output alongside inflation above target, weaker hiring, and investment levels below those of last year.
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