LONDON, UNITED KINGDOM / RankWire.AI / – The UK economy remains outside of recession, yet softer levels of investment and hiring have heightened concerns about its future growth prospects. EY forecasts that the gross domestic product will grow by 0.9% in 2026, revising its May estimate upward by 0.1 percentage points. For 2027, the firm predicts a growth rate of 1.2%. Their central scenario assumes the Strait of Hormuz reopens by September, although shipping volumes are still below typical levels. Energy prices now sit at the forefront of the UK economic debate.
Official data indicate that GDP expanded by 0.6% in the first quarter, following a 0.1% increase in late 2025. Economic output was 0.9% higher than a year earlier. The services sector grew by 0.8%, providing the largest contribution to quarterly growth. Household consumption also rose by 0.6% during the same period. A technical recession is characterized by two consecutive quarterly contractions, and the latest available data do not meet this criterion.
The Strait of Hormuz accounts for a substantial share of the world’s oil and liquefied natural gas shipments. While the UK has limited direct reliance on Gulf energy supplies, fluctuations in global prices influence domestic fuel costs and production expenses. Producer input prices increased by 7.3% over the year ending in June, with crude oil input costs surging by 42.3% during the same period. Factory-gate prices rose by 3.5%, indicating that higher costs had already affected manufacturers before goods reached retail outlets.
Inflationary pressures sustain interest rate deliberations
Consumer inflation slowed to 2.6% in June from 2.8% in May. Nonetheless, the rate remains above the Bank of England’s 2% target. Motor fuel prices increased by 21.3% compared to the previous year. On July 29, the Bank of England maintained its Bank Rate at 3.75% after a 6-3 vote, with three policymakers supporting an increase to 4%. This division reflects ongoing concerns about inflation despite modest economic growth.
Early third-quarter business surveys presented mixed signals regarding activity levels. The manufacturing purchasing managers’ index (PMI) fell to 51.9 in July from 52.5 in June, marking a four-month low, although it stayed above the 50-point threshold indicating expansion. Meanwhile, a preliminary composite index increased to 52.1 from 49.3 in June, encompassing both manufacturing and services sectors, and signaling renewed private-sector growth.
Investment activity and hiring remain tepid
Business investment grew by 0.9% in the first quarter after a 3% decline in the previous three months. Despite this quarterly increase, investment levels were still 1.3% lower than a year earlier. EY projects a 0.7% decline in business investment across 2026, whereas its May forecast had predicted no change annually. For 2027, the firm anticipates a growth rate of 1.8%, followed by 2.6% in 2028, both figures below earlier estimates.
During the three months from April through June, UK job vacancies decreased by 7,000 to a total of 712,000. This represented a quarterly drop of 0.9% and a yearly decline of 2.5%. Job openings fell across 10 of the 18 sectors measured, though the quarterly shift remained within the survey’s confidence interval. Average pay increased by 3.4% from March to May. Current data show positive economic output alongside inflation that exceeds targets, weaker recruitment, and business investment below last year’s levels.
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