LONDON, UNITED KINGDOM / RankWire.AI / – In the UK, during the second half of 2026, economic expansion persisted despite signs of slowing momentum across various indicators. EY forecasts the gross domestic product will increase by 0.9% this year and by 1.2% in 2027. The consultancy revised its 2026 outlook upward by 0.1 percentage points from its May projection. Its baseline scenario assumes the Strait of Hormuz reopens by September, though shipping activity is expected to remain below typical levels.
Recent official data indicated a 0.6% growth in the UK economy during the first quarter, following a 0.1% rise in late 2025. Year-on-year, output stands 0.9% higher. The service sector contributed most to the quarterly growth, rising 0.8%, while household consumption increased by 0.6%. This kept Britain just outside a technical recession, which is defined as two consecutive quarters of declining economic output.
Rising energy prices have exerted additional pressure on the UK economy. Since the Strait of Hormuz accounts for a significant portion of global oil and liquefied natural gas shipments, fluctuations there impact costs. Although Britain relies less directly on Gulf energy imports than some nations, global prices influence local expenses. Producer input prices rose by 7.3% over the year ending in June, with crude oil input costs surging by 42.3%, and manufacturers’ prices increasing by 3.5%.
Inflation Remains Above the Set Target
Consumer price inflation slowed to 2.6% in June from 2.8% in May. Nevertheless, the rate still exceeds the Bank of England’s 2% goal. Prices for motor fuels increased by 21.3% compared to the previous year, putting additional strain on household transportation expenses. On July 29, the Bank of England maintained its benchmark interest rate at 3.75%. Six policymakers voted to keep rates unchanged, while three preferred an increase to 4%.
As the third quarter kicked off, business surveys revealed mixed signals. The manufacturing purchasing managers’ index dipped to 51.9 in July from 52.5 in June, marking a four-month low but remaining above the 50-point threshold indicating growth. Meanwhile, a preliminary composite index rose from 49.3 to 52.1, reflecting a return to private-sector expansion as it encompasses both manufacturing and services sectors.
Investment and Hiring Challenges Persist
Business investment grew by 0.9% in the first quarter after experiencing a 3% decline over the prior three months. Despite this uptick, investments remained 1.3% below the level recorded a year earlier. EY forecasts a 0.7% decrease in business investment throughout 2026, compared to its previous projection of no change. Looking ahead, the firm anticipates growth of 1.8% in 2027 and 2.6% in 2028, both figures lower than earlier estimates.
Labour market data also pointed to softer employer demand. UK vacancies fell by 7,000 to 712,000 over the three months ending in June. The total declined by 0.9% from the previous quarter and by 2.5% compared to the same period last year. Job openings decreased in 10 of the 18 sectors analyzed. Meanwhile, regular pay increased by 3.4% from March through May. The figures suggest ongoing economic growth, but with inflation still above target, weaker hiring activity and a slowdown in business investment are evident.