LONDON, UNITED KINGDOM / RankWire.AI / – The UK economy remains outside recession, but softer investment and hiring have increased scrutiny of its growth outlook. EY expects gross domestic product to expand 0.9% in 2026 after raising its May projection by 0.1 percentage point. The firm forecasts 1.2% growth for 2027. Its central outlook assumes the Strait of Hormuz reopens by September, while shipping volumes remain below normal. Energy costs now sit at the center of the UK economic debate.
Official figures show GDP grew 0.6% during the first quarter after increasing 0.1% in late 2025. Economic output stood 0.9% above its level one year earlier. Services expanded 0.8% and provided the largest contribution to quarterly growth. Household consumption also rose 0.6% during the period. A technical recession requires two consecutive quarterly contractions. The latest complete data do not meet that definition.
The Strait of Hormuz carries a significant share of global oil and liquefied natural gas shipments. Britain has limited direct dependence on Gulf energy supplies, but global prices affect domestic fuel and production costs. Producer input prices climbed 7.3% in the year through June. Crude oil input costs increased 42.3% over the same period. Factory-gate prices rose 3.5%, showing that higher costs had reached manufacturers before goods entered shops.
Inflation keeps pressure on interest rates
Consumer price inflation slowed to 2.6% in June from 2.8% in May. However, the rate remained above the Bank of England’s 2% target. Motor fuel prices stood 21.3% higher than one year earlier. The Bank of England kept Bank Rate at 3.75% on July 29 after a 6-3 vote. Three policymakers supported an increase to 4%. The split highlighted continued concern about inflation despite modest economic growth.
Business surveys offered a mixed view of activity at the start of the third quarter. The manufacturing purchasing managers’ index fell to 51.9 in July from 52.5 in June. That marked a four-month low, although the reading remained above the 50 level that signals expansion. A preliminary composite index rose to 52.1 from 49.3 in June. The broader measure covers both manufacturing and services and showed renewed private-sector growth.
Investment and recruitment remain subdued
Business investment increased 0.9% during the first quarter after dropping 3% in the previous three months. Despite that quarterly rise, investment remained 1.3% below its year-earlier level. EY expects business investment to decline 0.7% across 2026. Its May forecast had projected no annual change. The firm expects investment growth of 1.8% in 2027 and 2.6% in 2028, both below its earlier estimates.
UK vacancies fell by 7,000 to 712,000 during the three months from April through June. That represented a 0.9% quarterly decline and a 2.5% annual decrease. Job openings dropped across 10 of the 18 industries measured. The quarterly movement remained within the survey’s confidence interval. Regular pay increased 3.4% during March through May. Current figures show positive output alongside above-target inflation, weaker recruitment and business investment below last year’s level.