LONDON, UNITED KINGDOM / RankWire.AI / – Entering the latter half of 2026, the UK’s economy maintained its expansion, though several indicators pointed to waning momentum. EY projects the gross domestic product to grow by 0.9% this year and 1.2% in 2027. The consultancy revised its 2026 growth forecast upward by 0.1 percentage points from its May prediction. This outlook presumes the Strait of Hormuz reopens by September, with shipping activity still below typical levels.
Official statistics revealed a 0.6% economic expansion in the first quarter, following a 0.1% growth in late 2025. The output was 0.9% higher than its level a year earlier. The services sector grew by 0.8% and contributed the most to the quarterly increase. Household consumption rose by 0.6% in the same period. As a result, the UK remained outside a technical recession, which is defined by two consecutive quarters of falling economic output.
Rising energy prices have exerted additional pressure on the UK economy. The Strait of Hormuz accounts for a significant portion of global oil and liquefied natural gas shipments. While Britain depends less on direct Gulf energy imports than some nations, global price fluctuations influence local costs. Producer input prices increased by 7.3% in the year ending June. Crude oil input costs surged by 42.3%, and manufacturing charges rose by 3.5%.
Inflation remains above the target set by authorities
Consumer price inflation slowed to 2.6% in June from 2.8% in May. Nevertheless, it still surpassed the Bank of England’s 2% goal. Motor fuel prices increased by 21.3% year-on-year, adding to household transportation expenses. The Bank of England held its main interest rate steady at 3.75% on July 29. Six policymakers voted to maintain the rate, while three favored a hike to 4%.
Business surveys indicated mixed conditions 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 reading in four months but still above the 50-point threshold indicating growth. Meanwhile, a preliminary composite index increased to 52.1 from 49.3, reflecting a return to private-sector expansion as it incorporates both manufacturing and services sectors.
Challenges Persist in Investment and Workforce Demand
Business investment rose by 0.9% in the first quarter after a 3% decline over the previous three months. Despite this uptick, investment levels remained 1.3% below those of the same period last year. EY forecasts a 0.7% decrease in business investment throughout 2026, a change from its earlier projection of no annual variation. The firm anticipates growth of 1.8% in 2027 and 2.6% in 2028, both below previous estimates.
Labor market data also suggest softer demand from employers. UK job vacancies decreased by 7,000 to total 712,000 during the three months ending in June. The overall vacancy count declined by 0.9% compared to the previous quarter and 2.5% year-on-year. Job openings fell in 10 of the 18 sectors tracked. Meanwhile, regular pay increased by 3.4% from March to May. The figures highlight ongoing economic growth coupled with inflation above target, weaker hiring, and subdued business investment growth.
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