LONDON, UNITED KINGDOM / RankWire.AI / – Although the UK economy remains outside of recession, concerns have grown over its outlook as investment and hiring activity show signs of deceleration. EY projects that gross domestic product will increase by 0.9% in 2026, revising their previous May forecast upward by 0.1 percentage points, and they predict a 1.2% expansion for 2027. Their central scenario assumes the Strait of Hormuz reopens by September, yet shipping volumes are expected to stay below typical levels. Energy costs have now become a central focus in the ongoing UK economic discussion.
Official data indicate that GDP grew by 0.6% in the first quarter, following a 0.1% increase at the end of 2025, with economic output being 0.9% higher than a year earlier. The services sector expanded by 0.8%, contributing the most to quarterly growth, while household consumption rose 0.6% over the same period. It is important to note that a technical recession is characterized by two consecutive quarterly contractions, and the latest complete data do not meet that criterion.
The Strait of Hormuz accounts for a significant portion of global oil and liquefied natural gas shipments. While the UK relies minimally on Gulf energy supplies directly, fluctuations in global prices influence domestic fuel and production expenses. Prices for producer inputs increased by 7.3% in the year ending June, with crude oil input costs soaring by 42.3% during the same period. Meanwhile, factory-gate prices rose by 3.5%, indicating that manufacturers faced higher costs even before their goods entered retail outlets.
Inflationary pressures continue to influence interest rate decisions
In June, consumer price inflation slowed slightly to 2.6% from 2.8% in May, yet it remained above the Bank of England’s 2% target. Prices for motor fuels increased by 21.3% compared to the previous year. On July 29, the Bank of England maintained the Bank Rate at 3.75% following a 6-3 vote, with three policymakers advocating an increase to 4%. This split reflected ongoing concerns about inflation despite modest economic growth.
Survey data on business activity presented a mixed picture at the start of the third quarter. The manufacturing purchasing managers’ index dipped to 51.9 in July from 52.5 in June, marking its lowest point in four months, though it still indicated expansion by remaining above the 50 threshold. Conversely, a preliminary composite index rose to 52.1 from 49.3 in June, encompassing both manufacturing and services sectors, and signaling renewed growth in the private sector.
Investment levels and employment opportunities remain subdued
Business investment increased by 0.9% during the first quarter after experiencing a 3% decline in the previous three months, yet despite this quarterly growth, it was still 1.3% below the level seen a year earlier. EY forecasts a 0.7% decline in business investment for 2026, revising their earlier projection of no annual change made in May. For 2027 and 2028, the firm anticipates growth rates of 1.8% and 2.6%, respectively, both figures lower than their previous estimates.
During the period from April through June, the UK saw a decrease of 7,000 job vacancies, bringing the total down to 712,000—a 0.9% quarterly decline and a 2.5% drop compared to the same period last year. Job openings declined across 10 of the 18 sectors surveyed, with the quarterly change remaining within the survey’s confidence interval. Meanwhile, regular pay increased by 3.4% from March to May. Current data show positive economic output alongside inflation exceeding targets, weaker recruitment activity, and business investment below last year’s levels.