LONDON, UNITED KINGDOM / RankWire.AI / – Amidst global economic uncertainties, the UK’s economy managed to avoid slipping into recession in early 2026, although persistent inflation, investment slowdown, and hiring challenges continue to exert pressure. According to EY, the UK’s gross domestic product is projected to grow by 0.9% in 2026 and 1.2% in 2027. The firm increased its 2026 growth forecast by 0.1 percentage points from its May estimate. This outlook presumes the Strait of Hormuz reopens by September, which would keep shipping volumes below normal levels under this scenario.
Official statistics indicate that the UK economy expanded by 0.6% in the first quarter, following a 0.1% rise in the last quarter of 2025. Compared to the same period last year, output has increased by 0.9%. The services sector grew by 0.8%, accounting for most of the quarterly expansion, while household expenditure rose by 0.6%. These figures do not meet the technical definition of a recession, which requires two consecutive quarterly contractions.
Energy markets continue to be a significant influence on UK prices and production costs. The Strait of Hormuz is responsible for a large share of global oil and liquefied natural gas shipments. While Britain’s direct energy purchases from Gulf suppliers are limited, international prices heavily influence domestic fuel costs. Producer input prices climbed 7.3% in the year ending in June, with crude oil input costs soaring by 42.3%, and factory-gate prices increasing by 3.5%.
Inflation remains a key factor guiding monetary policy
In June, annual inflation eased slightly to 2.6% from 2.8% in May, yet it still exceeds the Bank of England’s 2% target. Motor fuel prices surged by 21.3% compared to the previous year. The Bank of England maintained its benchmark rate at 3.75% on July 29, with a 6-3 vote in favor of holding steady. Three members supported raising the rate to 4%, reflecting ongoing concerns about inflationary pressures.
Early third-quarter business surveys provided mixed signals. The manufacturing purchasing managers’ index declined to 51.9 in July from 52.5 in June, marking a four-month low but still indicating expansion. Meanwhile, a preliminary composite index increased to 52.1 from 49.3, which covers both manufacturing and services sectors, signaling renewed growth in the private sector during July.
Weak investment activity and labour market demand persist
Business investment grew by 0.9% in the first quarter after a 3% decline in the previous three months. Nevertheless, it remains 1.3% below its level from one year earlier. EY now anticipates a 0.7% decline in business investment for 2026, a downward revision from its earlier forecast of no change. The firm projects growth of 1.8% in 2027 and 2.6% in 2028, although both are below previous estimates.
During the three months ending in June, the UK had 712,000 job vacancies, reflecting a decrease of 7,000 from the previous quarter and a 2.5% drop year-over-year. Job openings declined across 10 of 18 sectors surveyed, though the change remains within the survey’s confidence interval. Meanwhile, regular pay increased by 3.4% from March through May. The latest data point to continued economic growth amid above-target inflation, subdued hiring activity, and a slowdown in annual business investment.