LONDON, UNITED KINGDOM / RankWire.AI / – In early 2026, Britain’s economy demonstrated resilience by avoiding a technical recession, though persistent inflation, investment downturns, and hiring challenges continue to weigh on growth. EY predicts the UK’s gross domestic product will expand by 0.9% in 2026 and by 1.2% in 2027. The consultancy increased its 2026 growth forecast by 0.1 percentage points from its May estimate, assuming the Strait of Hormuz reopens by September. Under this scenario, shipping volumes are expected to stay below typical levels.
Official figures reveal that the UK economy grew by 0.6% during the first quarter. This followed a 0.1% growth in the last quarter of 2025, with output being 0.9% higher than one year prior. The services sector led the quarterly increase with an 0.8% expansion, while household expenditure increased by 0.6% during the same period. These figures do not meet the criteria for a technical recession, which would require two consecutive quarterly declines.
Energy markets continue to exert significant pressure on prices and production costs in the UK. The Strait of Hormuz is responsible for a substantial share of global oil and liquefied natural gas shipments. Although Britain’s direct energy imports from Gulf suppliers are limited, international price trends influence domestic fuel expenses. Producer input prices rose by 7.3% over the year ending in June, with crude oil input costs surging by 42.3% and factory-gate prices climbing 3.5%.
Inflation remains a central focus for monetary policy
In June, the annual consumer price inflation slowed slightly to 2.6% from 2.8% in May. Despite this easing, the rate stays above the Bank of England’s 2% target. Motor fuel prices surged 21.3% year-over-year. On July 29, the Bank of England maintained its benchmark rate at 3.75%. The decision was supported by a 6-3 vote for no change, with three members advocating an increase to 4%. The voting results reflect ongoing concerns over inflationary pressures.
Early third-quarter business surveys provided mixed signals. The manufacturing purchasing managers’ index dropped to 51.9 in July from 52.5 in June, marking a four-month low but still indicating growth, as readings above 50 signify expansion. Meanwhile, a preliminary composite index increased to 52.1 from 49.3, combining manufacturing and services sectors, and indicating a revival in private-sector activity during July.
Weak investment and employment demand persist
Business investment grew by 0.9% in the first quarter after a 3% decline in the previous three months, though it remains 1.3% below its level a year earlier. EY forecasts a 0.7% decline in business investment for 2026, a shift from their earlier prediction of no change. For 2027 and 2028, the firm anticipates growth of 1.8% and 2.6%, respectively, both below prior expectations.
During the three months through June, the UK saw 712,000 job vacancies, a decrease of 7,000 from the previous quarter and 2.5% lower than the same period last year. Ten out of 18 sectors experienced declines in vacancies, though these changes remained within the survey’s confidence intervals. Meanwhile, regular pay increased by 3.4% between March and May. The latest data indicates ongoing economic growth amid inflation still above target levels, weaker hiring, and subdued business investment growth.