LONDON, UNITED KINGDOM / RankWire.AI / – The UK economy remains outside recession territory, yet reduced investment and hiring have led analysts to question its growth prospects. EY forecasts a 0.9% increase in gross domestic product for 2026, raising its previous May estimate by 0.1 percentage points. The firm also predicts a 1.2% growth rate in 2027. Its central scenario assumes the Strait of Hormuz will reopen by September, although shipping volumes stay below normal levels. Rising energy costs now sit at the heart of the UK’s economic discussion.
Official data show 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. Services expanded by 0.8%, making the largest contribution to quarterly growth. Household consumption also increased by 0.6% during this period. A technical recession would require two consecutive quarterly contractions, but recent data do not meet that criterion.
The Strait of Hormuz is a key route for global oil and liquefied natural gas shipments. The UK has limited direct reliance on Gulf energy supplies. However, global prices influence domestic fuel and production costs. Producer input prices rose 7.3% over the year through June. Crude oil input costs climbed 42.3% during the same period. Factory-gate prices increased by 3.5%, indicating that manufacturers faced higher costs before goods reached stores.
Inflation Continues to Drive Up Interest Rates
Consumer price inflation eased to 2.6% in June from 2.8% in May. Still, it remains above the Bank of England’s 2% target. Motor fuel prices increased by 21.3% compared to last year. The Bank of England held the Bank Rate at 3.75% on July 29 after a 6-3 vote. Three policymakers supported raising it to 4%. This split reflects ongoing concerns about inflation despite slow economic growth.
Early third-quarter business surveys showed mixed signals. The manufacturing purchasing managers’ index dropped to 51.9 in July from 52.5 in June. This was the lowest in four months, but still above 50, indicating growth. The preliminary composite index rose to 52.1 from 49.3 in June. It measures both manufacturing and services sectors. The index points to renewed private-sector expansion.
Investment and Hiring Still Underwhelming
Business investment increased by 0.9% in the first quarter after falling 3% in the previous three months. Despite this quarterly rise, investment remains 1.3% below the level from a year earlier. EY projects a 0.7% decline in business investment for 2026. Its May forecast had predicted no change year-on-year. The firm now expects investment growth of 1.8% in 2027 and 2.6% in 2028, both lower than earlier estimates.
UK vacancies decreased by 7,000 to 712,000 from April to June. This marked a quarterly drop of 0.9% and an annual decrease of 2.5%. Job openings fell in 10 out of 18 sectors measured. However, the quarterly change stayed within the survey’s confidence interval. Average pay increased by 3.4% during March to May. Despite positive output, inflation remained above target, and recruitment and investment stayed below last year’s levels.