LONDON, UNITED KINGDOM / RankWire.AI / – As the second half of 2026 begins, the UK economy maintains its growth trajectory, although certain indicators suggest a slowdown in momentum. EY projects the gross domestic product will increase by 0.9% in 2026 and 1.2% in 2027. The consulting firm’s latest forecast for 2026 is 0.1 percentage points higher than its estimate in May. This forecast assumes the Strait of Hormuz reopens by September, with shipping activity still operating below typical levels.
Official data revealed a 0.6% expansion in the economy during the first quarter, following a 0.1% growth at the end of 2025. The overall output was 0.9% higher than a year earlier, with services increasing by 0.8%, contributing most significantly to the quarterly rise. During the same period, household consumption rose by 0.6%. Consequently, the UK avoided a technical recession, which requires two consecutive quarters of declining economic output.
Rising energy costs have exerted additional pressure across the UK economy. The Strait of Hormuz accounts for a significant share of global oil and liquefied natural gas shipments. While Britain depends less on Gulf energy imports directly than some other nations, fluctuations in global prices still influence local expenses. Producer input prices rose by 7.3% year-on-year through June, with crude oil input costs surging by 42.3% and manufacturing prices increasing by 3.5%.
Inflation remains above the target set by authorities
Consumer price inflation eased slightly to 2.6% in June from 2.8% in May, yet still surpassing the Bank of England’s 2% target. The cost of motor fuels increased by 21.3% compared to the previous year, further adding to household transportation expenses. The Bank of England maintained its benchmark interest rate at 3.75% on July 29, with six policymakers supporting no change and three opting for an increase to 4%.
Business surveys indicated mixed conditions at the start of the third quarter. The manufacturing purchasing managers’ index fell to 51.9 in July from 52.5 in June, marking a four-month low but still above the 50-point threshold that signals growth. Meanwhile, a preliminary composite index rose to 52.1 from 49.3, encompassing manufacturing and services, and signifying a return to private-sector expansion.
Further pressures on investment and employment persist
Business investment grew by 0.9% in the first quarter, following a 3% decline over the previous three months. Despite this, investment remained 1.3% below the level recorded a year earlier. EY forecasts a 0.7% decline in business investment for 2026, contrasting with its earlier prediction of no change year-on-year. The firm anticipates growth rates of 1.8% in 2027 and 2.6% in 2028, both lower than previous estimates.
Data on the labour market also pointed to subdued demand from employers. UK vacancies decreased by 7,000 to 712,000 in the three months ending June. The total number of job openings declined by 0.9% from the previous quarter and 2.5% from a year earlier. Out of 18 industries surveyed, ten experienced fewer vacancies. Meanwhile, regular pay increased by 3.4% during March through May. The figures reveal ongoing economic growth combined with inflation above the target, reduced hiring activity, and lower annual business investment.
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