LONDON, UNITED KINGDOM / RankWire.AI / – The UK’s economy remains outside the confines of recession, yet softer rates of investment and hiring have prompted closer examination of its growth prospects. EY predicts that gross domestic product will increase by 0.9% in 2026, revising its May forecast upward by 0.1 percentage points. The company also forecasts a 1.2% expansion for 2027. Their central projection assumes the Strait of Hormuz reopens by September, although shipping volumes are still below typical levels. Energy costs are now at the forefront of the UK’s economic discussion.
Official statistics reveal that GDP grew by 0.6% in the first quarter, following a 0.1% increase in late 2025. Economic output stood 0.9% higher than its level from one year prior. The services sector expanded by 0.8%, making the largest contribution to quarterly growth. Household consumption also rose by 0.6% during this period. A technical recession typically requires two consecutive quarterly contractions, but the most recent complete data do not satisfy this criterion.
The Strait of Hormuz accounts for a significant portion of global oil and liquefied natural gas shipments. While Britain’s direct reliance on Gulf energy supplies remains limited, fluctuations in global prices impact domestic fuel and production costs. Producer input prices increased by 7.3% in the year ending June, with crude oil input costs rising by 42.3% over the same period. Factory-gate prices grew by 3.5%, indicating that rising costs have already affected manufacturers before goods reach retail outlets.
Inflation Continues to Keep Interest Rate Hikes on the Table
Consumer price inflation eased to 2.6% in June from 2.8% in May. Despite this slowdown, the inflation rate remains above the Bank of England’s 2% target. Prices for motor fuels were 21.3% higher than they were 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 an increase to 4%, illustrating ongoing concerns about inflation despite modest economic growth.
Early third-quarter business surveys depicted mixed signals about activity levels. The manufacturing purchasing managers’ index fell to 51.9 in July from 52.5 in June, marking its lowest reading in four months but still above the 50-point threshold indicating expansion. Meanwhile, a preliminary composite index rose to 52.1 from 49.3 in June, encompassing both manufacturing and services, and signaled renewed growth in the private sector.
Investment and Hiring Activity Continue to Remain Weak
Business investment grew by 0.9% during the first quarter, bouncing back from a 3% decline in the previous three months. Despite this quarterly increase, investment still lagged 1.3% below its level from the same period last year. EY projects a 0.7% decline in business investment for 2026, revising its May forecast of no change. They now anticipate growth of 1.8% in 2027 and 2.6% in 2028, both below previous estimates.
Vacancies in the UK decreased by 7,000 to total 712,000 during the three months from April to June, representing a 0.9% quarterly drop and a 2.5% decline year-over-year. Job openings fell across 10 of the 18 sectors analyzed, with the quarterly movement remaining within the survey’s confidence interval. Meanwhile, regular pay increased by 3.4% from March through May. Current data reflect a situation where positive economic output exists alongside above-target inflation, weaker recruitment, and business investment levels below those of the previous year.