LONDON, UNITED KINGDOM / RankWire.AI / – Although the UK economy maintained growth into the latter half of 2026, various indicators pointed to a slowdown in momentum. EY forecasts a 0.9% increase in gross domestic product for this year and a 1.2% rise in 2027. The consultancy revised its 2026 prediction upward by 0.1 percentage points from its estimate in May. Its central scenario presumes the Strait of Hormuz reopens by September, though shipping activity is expected to remain below typical levels.
Official data revealed a 0.6% expansion in the economy during the first quarter, following a 0.1% growth in late 2025. Year-over-year, output was 0.9% higher. The services sector contributed most to the quarterly increase with an 0.8% rise, while household consumption grew by 0.6% during the same period. As a result, the UK narrowly avoided a technical recession, which requires two consecutive quarters of declining economic output.
Rising energy costs have added strain to the UK economic landscape. The Strait of Hormuz, which handles a significant portion of global oil and liquefied natural gas shipments, influences costs despite the UK’s lesser dependence on direct Gulf energy imports compared to some nations. Global prices continue to influence local expenses. Producer input prices rose 7.3% in the year ending June. Specifically, crude oil input prices surged 42.3%, while manufacturing prices increased by 3.5%.
Inflation remains above the Bank of England’s target
Consumer price inflation decreased to 2.6% in June from 2.8% in May. Nonetheless, the inflation rate still exceeds the Bank of England’s 2% goal. Motor fuel prices jumped 21.3% compared to the previous year, increasing household transportation expenses. On July 29, the Bank of England held its benchmark interest rate steady at 3.75%. Out of six policymakers, three supported no change, while three preferred raising the rate to 4%.
Early third-quarter business surveys displayed mixed conditions. The manufacturing purchasing managers’ index fell to 51.9 in July from 52.5 in June, marking a four-month low but remaining above the 50-point threshold that signals growth. Meanwhile, a preliminary composite index increased from 49.3 to 52.1, reflecting a return to expansion in the private sector that encompasses both manufacturing and services sectors.
Business investment and employment show ongoing pressure
Investment by businesses grew by 0.9% in the first quarter after a 3% decline over the previous three months. Despite this growth, investment still lagged 1.3% behind the level recorded a year earlier. EY anticipates a 0.7% drop in business investment for 2026, revising its earlier forecast of no change. For 2027 and 2028, the firm projects increases of 1.8% and 2.6%, respectively, both below previous estimates.
Labor market indicators also hinted at reduced employer demand. UK job vacancies decreased by 7,000 to a total of 712,000 during the three months ending in June. This represented a 0.9% quarterly decline and a 2.5% decrease from the previous year. Ten out of the 18 industry sectors measured experienced a drop in job openings. Meanwhile, regular pay grew by 3.4% from March through May. The data depict an economy that continues to expand but faces inflation above targets, weaker hiring rates, and declining business investment on an annual basis.