LONDON, UNITED KINGDOM / RankWire.AI / – The UK economy continues to grow, avoiding recession, but a slowdown in investment and job creation has heightened concerns about its future expansion. EY projects the gross domestic product to increase by 0.9% in 2026, revising its May forecast upward by 0.1 percentage points. The company also anticipates a 1.2% growth rate in 2027. Their central outlook considers the Strait of Hormuz reopening by September, while shipping volumes stay below usual levels. Currently, energy prices are at the forefront of economic discussions in the UK.
Official data reveal that GDP expanded by 0.6% in the first quarter, following a 0.1% rise in late 2025. Economic output was 0.9% higher than the same period last year. The services sector grew by 0.8%, contributing most significantly to quarterly growth. Household consumption also increased by 0.6% during this period. A technical recession requires two consecutive quarters of decline, but the latest complete data do not meet this criterion.
The Strait of Hormuz accounts for a substantial share of global oil and liquefied natural gas shipments. While the UK has limited direct reliance on Gulf energy supplies, global prices influence domestic fuel and production costs. Producer input prices rose by 7.3% over the year ending in June, with crude oil input costs surging by 42.3%. Factory-gate prices increased by 3.5%, indicating that higher costs had already impacted manufacturers before reaching retail outlets.
Inflationary pressures sustain interest rate debates
Consumer price inflation eased to 2.6% in June from 2.8% in May. Nonetheless, it remains above the Bank of England’s 2% target. Motor fuel prices were 21.3% higher than a year earlier. The Bank of England kept the Bank Rate steady at 3.75% on July 29, following a 6-3 vote. Three policymakers favored raising it to 4%. This split underscores ongoing concern about inflation despite modest economic growth.
Early third-quarter business surveys present mixed signals. The manufacturing purchasing managers’ index fell to 51.9 in July from 52.5 in June, hitting a four-month low but still indicating expansion as it remains above the 50 mark. Meanwhile, a preliminary composite index increased to 52.1 from 49.3 in June, reflecting renewed private-sector growth across both manufacturing and services sectors.
Sluggish investment and employment figures persist
During the first quarter, business investment saw a modest rise of 0.9%, following a 3% decline in the previous three months. Despite this increase, investment levels remain 1.3% below those of the same period last year. EY forecasts a 0.7% decline in business investment for 2026, contrasting with its earlier projection of no change. For 2027, the firm anticipates growth of 1.8%, followed by 2.6% in 2028, both figures lower than previous estimates.
UK job vacancies decreased by 7,000 to total 712,000 from April to June, representing a quarterly drop of 0.9% and an annual decline of 2.5%. Ten out of eighteen industries experienced fewer job openings. The quarterly change stayed within the survey’s confidence interval. Meanwhile, regular pay rose by 3.4% between March and May. Overall, current data show positive economic output but also highlight above-target inflation, weaker hiring activity, and business investment levels below those of last year.
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