LONDON, UNITED KINGDOM / RankWire.AI / – The UK economy began the latter half of 2026 with signs of ongoing expansion, yet several key metrics pointed to a slowdown in growth. EY forecasts that gross domestic product will increase by 0.9% this year and by 1.2% in 2027. The consultancy raised its 2026 growth projection by 0.1 percentage points from its estimate made in May. This outlook assumes the Strait of Hormuz reopens by September, though shipping activity is still below typical levels.
Official data 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 expanded by 0.8%, contributing the most to the quarterly growth. Household consumption also increased by 0.6% during this period. Consequently, Britain narrowly avoided a technical recession, which would require consecutive quarters of decline in economic output.
Rising energy costs have exerted additional pressure across the UK’s economy. The Strait of Hormuz is a major route for global shipments of oil and liquefied natural gas. While the UK depends less on Gulf energy imports compared to some other nations, global price fluctuations still influence domestic costs. Producer input prices rose by 7.3% over the year ending in June. Specifically, crude oil input costs surged by 42.3%, and manufacturing prices increased by 3.5%.
Inflation Remains Above the Official Target Despite Slight Easing
Consumer price inflation slowed to 2.6% in June from 2.8% in May. However, this rate still exceeds 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 key interest rate at 3.75% on July 29. Six policymakers supported holding rates steady, while three favored raising it to 4%.
Economic surveys at the start of the third quarter showed 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 it stayed above the 50-point threshold. Meanwhile, a preliminary composite index rose to 52.1 from 49.3, reflecting a return to private-sector expansion, combining manufacturing and services data.
Continued Challenges in Investment and Hiring Demand
Business investment increased by 0.9% in the first quarter after a 3% decline over the previous three months. Despite this improvement, investment levels remained 1.3% below those of the same period last year. EY predicts a 0.7% decline in business investment for 2026, a change from its earlier forecast of no growth. The firm also expects growth of 1.8% in 2027 and 2.6% in 2028, both figures lower than initial estimates.
Data on the labour market pointed to easing employer demand. During the three months ending in June, UK vacancies fell by 7,000 to a total of 712,000. The number of openings decreased by 0.9% from the previous quarter and by 2.5% year-on-year. Out of 18 industries measured, job openings declined in ten. Meanwhile, regular pay growth was 3.4% from March to May. The figures depict a picture of ongoing economic growth amid persistent inflation, weaker hiring activity, and reduced business investment year-over-year.
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