LONDON, UNITED KINGDOM / RankWire.AI / – The UK economy maintained its expansion into the latter half of 2026, although several indicators pointed to diminished 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 growth projection upward by 0.1 percentage points from its May estimate. This central forecast assumes the Strait of Hormuz reopens by September, with shipping activity still operating below typical levels.
Official statistics indicated that the economy grew by 0.6% in the first quarter, following a 0.1% increase in late 2025. Year-over-year, output was 0.9% higher. The services sector contributed most significantly to the quarterly growth, rising 0.8%. Household expenditure also increased by 0.6% during the same period. As a result, Britain avoided a technical recession, which is defined as two consecutive quarters of declining economic output.
Rising energy prices have exerted additional pressure across the UK economy. The Strait of Hormuz accounts for a substantial portion of global oil and liquefied natural gas shipments. While Britain depends less on direct Gulf energy imports compared to some nations, global price fluctuations influence local costs. Producer input prices rose by 7.3% in the year ending June. Crude oil input costs surged by 42.3%, and manufacturers’ selling prices increased by 3.5%.
Inflation remains above official target
Consumer price inflation decreased slightly to 2.6% in June from 2.8% in May. Nonetheless, this rate continues to surpass the Bank of England’s 2% target. The cost of motor fuels rose 21.3% compared to the previous year, adding to household transportation expenses. The Bank of England maintained its benchmark interest rate at 3.75% on July 29. Out of the nine policymakers, six supported holding rates steady, while three favored raising them to 4%.
Surveys of business conditions at the start of the third quarter showed mixed signals. The manufacturing purchasing managers’ index declined to 51.9 in July from 52.5 in June, reaching its lowest point in four months but still indicating growth. Meanwhile, a preliminary composite index increased to 52.1 from 49.3, reflecting a return to private-sector expansion that includes both manufacturing and services sectors.
Investment activity and hiring demand under pressure
Business investment grew by 0.9% in the first quarter following a 3% decline over the previous three months. Despite this uptick, investment levels remained 1.3% below the same period last year. EY projects a 0.7% decrease in business investment throughout 2026, a revision from its earlier forecast of no change. The firm anticipates growth rates of 1.8% in 2027 and 2.6% in 2028, both below previous expectations.
Data from the labour market also pointed to subdued employer demand. The number of vacancies in the UK decreased by 7,000 to 712,000 during the three months ending in June. This represented a 0.9% decline from the previous quarter and a 2.5% decrease compared to the same period last year. Job openings diminished across 10 of the 18 industries monitored. Meanwhile, regular pay increased by 3.4% from March to May. Overall, the data depict ongoing economic growth alongside inflation that exceeds targets, weaker hiring activity, and reduced business investment over the past year.