LONDON, UNITED KINGDOM / RankWire.AI / – As the UK’s economy moved into the latter half of 2026, signs of resilience persisted alongside some indications of diminishing momentum. According to EY, the country’s gross domestic product is forecasted to grow by 0.9% this year and 1.2% in 2027. The consultancy upgraded its 2026 projection by 0.1 percentage point compared to its estimate in May. This outlook presumes the Strait of Hormuz will reopen by September, although shipping activity is expected to stay below typical levels.
Official statistics revealed that the economy expanded by 0.6% in the first quarter, following a 0.1% increase in late 2025. The total output was 0.9% higher than it was a year earlier. The services sector contributed most significantly to the quarterly growth with an 0.8% rise, while household consumption increased by 0.6%. As a result, the UK avoided a technical recession, which would require consecutive declines in economic output over two quarters.
Rising energy prices have exerted additional pressure across the UK economy. The Strait of Hormuz is a crucial route for a large share of global oil and liquefied natural gas shipments. While Britain relies less directly on Gulf energy imports than some nations, global price fluctuations influence local costs. Producer input prices climbed 7.3% in the year ending June, with crude oil input costs surging by 42.3% and manufacturing charges increasing by 3.5%.
Inflation persists above the Bank of England’s target
Consumer price inflation eased slightly to 2.6% in June from 2.8% in May. Nonetheless, the rate remains above the Bank of England’s 2% target. The cost of motor fuel increased by 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, with six policymakers supporting no change, while three favored a hike to 4%.
Early indicators from business surveys showed uneven conditions at the start of the third quarter. The manufacturing purchasing managers’ index fell to 51.9 in July from 52.5 in June, marking a four-month low, though it still signaled growth, as readings above 50 denote expansion. A preliminary composite index, which encompasses both manufacturing and services, rose to 52.1 from 49.3, signaling a return to private-sector expansion.
Investment levels and hiring activity face ongoing challenges
Business investment increased by 0.9% in the first quarter after experiencing a 3% decline in the previous three months. Despite this uptick, overall investment remained 1.3% below its level from a year earlier. EY projects a 0.7% decrease in business investment for 2026, a downward revision from its previous forecast of no change. For 2027 and 2028, the firm anticipates growth rates of 1.8% and 2.6%, respectively, both below earlier estimates.
Labour market data point to subdued demand from employers. During the three months ending in June, vacancies in the UK fell by 7,000 to a total of 712,000. This represents a 0.9% quarterly decline and a 2.5% decrease compared to the same period last year. Job openings declined across 10 of the 18 sectors surveyed. Meanwhile, regular pay increased by 3.4% from March through May. These figures reflect ongoing economic growth coupled with inflation above the target, softer hiring activity, and reduced annual business investment.