LONDON, UNITED KINGDOM / RankWire.AI / – The UK economy is avoiding a recession, yet softer investment levels and slower job growth are raising questions about its future expansion. EY projects the gross domestic product to increase by 0.9% in 2026, revising its May forecast upward by 0.1 percentage points. The consultancy anticipates a 1.2% expansion in 2027. Their central scenario assumes the Strait of Hormuz reopens by September, although shipping activity remains below typical levels. Energy costs now play a pivotal role in the UK’s economic discussions.
Official statistics show GDP grew by 0.6% in the first quarter, following a 0.1% rise in late 2025. Economic output is now 0.9% higher than it was a year prior. The services sector contributed most to quarterly growth, expanding by 0.8%, while household consumption increased by 0.6% in the same period. A technical recession requires two consecutive quarterly contractions, but the latest available data do not meet that criterion.
The Strait of Hormuz accounts for a considerable portion of global oil and liquefied natural gas shipments. While the UK relies minimally on Gulf energy supplies directly, international prices influence domestic fuel costs and production expenses. Producer input prices rose by 7.3% in the year through June, with crude oil input costs soaring by 42.3% over the same span. Factory-gate prices increased by 3.5%, indicating that rising costs are impacting manufacturers before products reach retail outlets.
Inflationary pressures continue to influence interest rate decisions
Consumer inflation slowed to 2.6% in June from 2.8% in May. Nevertheless, the rate remains above the Bank of England’s 2% target. Prices for motor fuel rose by 21.3% compared to the previous year. On July 29, the Bank of England maintained the Bank Rate at 3.75% following a 6-3 vote, with three policymakers favoring a hike to 4%. This split underscores ongoing concerns about inflation despite modest economic growth.
Early third-quarter business surveys provided mixed signals regarding activity. The manufacturing purchasing managers’ index declined to 51.9 in July from 52.5 in June, marking its lowest point in four months but still above the 50 threshold indicating growth. Meanwhile, a preliminary composite index rose from 49.3 in June to 52.1, reflecting a broader increase in private-sector activity encompassing both manufacturing and services sectors.
Investment and employment growth remain muted
Business investment grew by 0.9% in the first quarter after a 3% decline in the previous three months. Despite this quarterly increase, investment levels are still 1.3% below those of the same period last year. EY predicts a 0.7% decline in business investment throughout 2026, a revision from its earlier forecast of no change. The firm also projects growth of 1.8% in 2027 and 2.6% in 2028, both figures lower than previous estimates.
UK job vacancies decreased by 7,000 to 712,000 during April through June, representing a 0.9% quarterly decline and a 2.5% drop compared to last year. The decline was seen across 10 of the 18 industries tracked, but remained within the survey’s confidence interval. Meanwhile, regular pay rose by 3.4% in March through May. Current data points to a scenario of positive economic output amid inflation that exceeds target levels, coupled with weaker recruitment and investment activity below the previous year’s levels.