LONDON, UNITED KINGDOM / RankWire.AI / – The UK economy remains outside of a recession, though declining investment and employment figures have heightened worries about its future expansion. EY anticipates a 0.9% increase in gross domestic product for 2026, revising its May estimate upward by 0.1 percentage points. The firm projects a 1.2% growth rate for 2027. Their central scenario assumes the Strait of Hormuz reopens by September, although shipping volumes are expected to stay below usual levels. Rising energy costs now play a pivotal role in the UK economic debate.
Official data reveal that GDP grew by 0.6% in the first quarter, following a 0.1% rise in late 2025. Economic output was 0.9% higher than its level a year earlier. The largest contributor to quarterly growth came from services, which expanded by 0.8%. Household consumption also increased by 0.6% during this period. Since a technical recession requires two consecutive quarterly contractions, the latest complete data do not meet that criterion.
The Strait of Hormuz is a critical conduit for a significant proportion of global oil and liquefied natural gas shipments. While the UK has limited direct reliance on Gulf energy supplies, fluctuations in global prices impact domestic fuel costs and production expenses. Producer input prices rose by 7.3% in the year ending June, with crude oil input costs surging by 42.3% over the same period. Factory-gate prices increased by 3.5%, indicating that higher costs were felt by manufacturers before goods reached retail outlets.
Inflationary pressures persist, influencing interest rate decisions
Consumer price inflation eased slightly to 2.6% in June from 2.8% in May. Despite this slowdown, the rate remains above the Bank of England’s 2% target. Motor fuel prices are 21.3% higher than they were a year ago. On July 29, the Bank of England maintained the Bank Rate at 3.75%, following a 6-3 vote. Three policymakers favored an increase to 4%, underscoring ongoing concerns about inflation despite modest economic growth.
Early third-quarter business surveys presented mixed signals about activity levels. The manufacturing purchasing managers’ index dropped to 51.9 in July from 52.5 in June, marking a four-month low; however, it still signaled expansion as it remained above the 50 threshold. Meanwhile, a preliminary composite index increased to 52.1 from 49.3 in June, encompassing both manufacturing and services sectors, and indicating renewed growth in the private sector.
Business investment and hiring continue to slow down
In the first quarter, business investment rose by 0.9%, rebounding from a 3% decline in the previous three months. Nonetheless, investment levels were still 1.3% below their year-earlier figures. EY forecasts a 0.7% decline in business investment for 2026, downward from its earlier projection of no change. However, the firm predicts growth of 1.8% in 2027 and 2.6% in 2028, both figures lower than previous estimates.
During April through June, UK vacancies decreased by 7,000, reaching 712,000, which is a 0.9% quarterly decline and a 2.5% drop compared to the previous year. Job openings fell across 10 of the 18 industries tracked, although the quarterly change remained within the survey’s confidence interval. Meanwhile, regular pay increased by 3.4% between March and May. Current data reveal a scenario of positive output alongside inflation that exceeds targets, weaker recruitment, and business investment levels below those of last year.