LONDON, UNITED KINGDOM / RankWire.AI / – The UK economy remains outside recession, but fresh forecasts show rising pressure from global energy disruption. EY raised its 2026 growth forecast to 0.9%, from 0.8% in May. It kept its 2027 baseline at 1.2%. That forecast assumes the Strait of Hormuz reopens by September with subdued tanker traffic. EY’s adverse case projects 0.5% growth this year and a 0.2% contraction in 2027.
Official figures show gross domestic product grew 0.6% in the first quarter, following 0.1% growth in late 2025. GDP stood 0.9% above its year-earlier level. Services expanded 0.8%, providing the largest contribution to quarterly growth. Household consumption also increased 0.6%. A technical recession requires two consecutive quarterly contractions, which current official data do not show.
Energy costs form the central link between the Iran conflict and the UK economic outlook. The Strait of Hormuz carries a major share of global oil and liquefied natural gas shipments. British prices therefore reflect disruptions in international markets, despite limited direct reliance on Gulf supplies. Producer input prices rose 7.3% in the year to June. Crude oil inputs increased 42.3%, while factory-gate prices rose 3.5%.
Inflation and rates remain elevated
Consumer price inflation eased to 2.6% in June from 2.8% in May. The rate remained above the Bank of England’s 2% target. Motor fuel prices stood 21.3% higher than a year earlier. The Bank of England held Bank Rate at 3.75% on July 29 by a 6-3 vote. Three policymakers backed a rise to 4%, while the bank said energy effects would lift inflation later this year.
Business surveys provide a second measure of UK economic momentum. The manufacturing purchasing managers’ index fell to 51.9 in July from 52.5 in June. The reading marked a four-month low but remained above the 50 threshold for expansion. A preliminary composite index rose to 52.1 from 49.3 in June. The composite measure covers manufacturing and services and indicated renewed private-sector growth at July’s start.
Investment and hiring lose momentum
Business investment rose 0.9% during the first quarter after falling 3% in the previous three months. However, investment remained 1.3% below its level one year earlier. EY now forecasts a 0.7% decline in business investment across 2026. Its May outlook had projected no annual change. The firm forecasts growth of 1.8% in 2027 and 2.6% in 2028, below its previous estimates.
Labour demand also weakened in the latest official survey. UK vacancies fell by 7,000 to 712,000 during April through June, a quarterly decline of 0.9%. Vacancies decreased across 10 of 18 industries, although the movement remained within the survey’s confidence interval. Regular pay grew 3.4% annually during March through May. Current data show positive output alongside above-target inflation, softer hiring demand and business investment below last year’s level.