LONDON, UNITED KINGDOM / RankWire.AI / – According to EY, the UK’s economy maintained its growth momentum into the second half of 2026, even though several indicators pointed to a slowdown. The consultancy firm forecasts the gross domestic product (GDP) will grow by 0.9% in 2026 and by 1.2% in 2027. This outlook was revised upward by 0.1 percentage points from their May projection. Their central forecast assumes the Strait of Hormuz reopens by September, with shipping activity still operating below usual levels.
Official statistics revealed that the economy grew by 0.6% in the first quarter, following a 0.1% increase in late 2025. Overall, output was 0.9% higher than its level a year prior. The services sector expanded by 0.8%, making the most significant contribution to the quarterly growth. Household consumption also increased by 0.6% during this period. As a result, Britain avoided a technical recession, which is defined as two consecutive quarters of declining economic output.
Rising energy prices have exerted additional pressure across the UK economy. The Strait of Hormuz is a major route for global oil and liquefied natural gas shipments. Although the UK is less dependent on direct Gulf energy imports compared to some nations, global price fluctuations influence domestic costs. Producer input prices rose by 7.3% in the year ending June. Crude oil input costs surged by 42.3%, while manufacturers’ prices increased by 3.5%.
Inflation remains above official target
Consumer price inflation slowed to 2.6% in June from 2.8% in May. Nevertheless, 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, putting additional strain on household transportation expenses. The Bank of England maintained its key interest rate at 3.75% on July 29. Among policymakers, six supported holding rates steady, while three advocated raising it to 4%.
Surveys of business conditions at the start of the third quarter showed mixed signals. The manufacturing purchasing managers’ index (PMI) dropped to 51.9 in July from 52.5 in June, marking a four-month low but remaining above the 50-point threshold that signals expansion. Meanwhile, a preliminary composite index, which combines manufacturing and services, increased to 52.1 from 49.3, indicating a return to growth within the private sector.
Investment and hiring trends continue to weaken
Business investment grew by 0.9% in the first quarter after falling 3% over the previous three months. Despite this upward move, investment levels remained 1.3% below those of the same period last year. EY projects a 0.7% decline in business investment for 2026, a shift from their earlier forecast of no change. For 2027 and 2028, the firm anticipates growth of 1.8% and 2.6%, respectively, both below earlier estimates.
Labor market data also suggest softer demand from employers. UK vacancies declined by 7,000 to a total of 712,000 in the three months ending June. This represented a 0.9% decrease from the previous quarter and a 2.5% drop compared to the same period last year. Out of 18 sectors monitored, job openings fell in 10. Despite this, regular pay increased by 3.4% from March to May. The figures depict ongoing economic growth, coupled with inflation above target, decreased hiring, and a slowdown in business investment growth.