LONDON, UNITED KINGDOM / RankWire.AI / – Amid ongoing economic expansion, the UK remains outside recession, but a slowdown in investment and job creation has raised questions about its future growth trajectory. EY projects the gross domestic product will increase by 0.9% in 2026, revising its earlier May forecast upward by 0.1 percentage points. The consultancy also predicts a 1.2% rise for 2027. Their main outlook assumes the Strait of Hormuz reopens by September, though shipping volumes are expected to stay below typical levels. Energy costs now sit at the heart of the UK’s economic discussion.
Official statistics reveal that GDP grew by 0.6% in the first quarter, following a 0.1% rise in late 2025. Economic output was 0.9% higher than its level a year earlier. The services sector expanded by 0.8%, making the largest contribution to quarterly growth. Household consumption also increased by 0.6% during this period. A technical recession would require two successive quarterly contractions, but the latest complete data do not meet that criterion.
The Strait of Hormuz is a key route for a significant portion of global oil and liquefied natural gas shipments. While the UK has limited direct reliance on Gulf energy supplies, fluctuations in global prices influence domestic fuel and production costs. Producer input prices rose by 7.3% in the year ending June, with crude oil input costs climbing 42.3% over the same timeframe. Factory-gate prices increased by 3.5%, indicating that higher costs are already impacting manufacturers before goods reach retail outlets.
Inflationary pressures persist, affecting interest rate decisions
Consumer inflation slowed to 2.6% in June from 2.8% in May. Nonetheless, this rate remains above the Bank of England’s 2% target. Prices for motor fuels surged by 21.3% compared to the previous year. The Bank of England maintained its Bank Rate at 3.75% on July 29, following a 6-3 vote. Three policymakers supported raising the rate to 4%. This division underscores ongoing concerns about inflation despite modest economic growth.
Early third-quarter business surveys show mixed signals for activity. The manufacturing purchasing managers’ index dropped to 51.9 in July from 52.5 in June, marking a four-month low but still above the 50-point threshold that indicates expansion. 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.
Investment and employment growth remain tepid
Business investment rose by 0.9% in the first quarter after a 3% decline in the previous three months. Despite this quarterly increase, investment was still 1.3% below its level from the same period last year. EY anticipates a 0.7% decline in business investment for 2026, down from its earlier forecast of no change. For 2027, EY expects a 1.8% growth, followed by 2.6% in 2028, both forecasts lower than previously projected.
During April through June, UK job vacancies decreased by 7,000 to a total of 712,000, representing a 0.9% quarterly fall and a 2.5% year-over-year decrease. The number of openings declined across 10 of the 18 sectors measured, though the quarterly change remains within the survey’s confidence interval. Meanwhile, regular pay increased by 3.4% between March and May. The latest figures reveal positive output figures, but above-target inflation, weaker hiring, and lower business investment compared to last year continue to pose challenges.