LONDON, UNITED KINGDOM / RankWire.AI / – Amid ongoing global economic challenges, the UK economy continued to expand into the second half of 2026, though several indicators revealed signs of sluggishness. EY projects that the country’s gross domestic product will increase by 0.9% this year and by 1.2% in 2027. The consultancy revised its 2026 growth forecast upward by 0.1 percentage point from its estimate in May. This outlook assumes the Strait of Hormuz will reopen by September, though shipping activity is expected to stay below typical levels.
Recent official data indicated that the economy grew by 0.6% in the first quarter after a 0.1% expansion in late 2025. Compared to the same period last year, output is 0.9% higher. The services sector contributed most to the quarterly growth, increasing by 0.8%. Meanwhile, household consumption experienced a 0.6% rise. As a result, the UK avoided a technical recession, which is defined by two consecutive quarters of economic contraction.
The rise in energy prices has placed additional strain on the UK economy. The Strait of Hormuz is a critical route for a significant portion of global oil and liquefied natural gas shipments. While Britain depends less on Gulf energy imports than some other countries, global price fluctuations influence local costs. Producer input prices rose by 7.3% in the year ending June. Specifically, crude oil input costs surged by 42.3%, and manufacturers’ selling prices increased by 3.5%.
Inflation remains above the target set by authorities
Consumer price inflation slowed to 2.6% in June from 2.8% in May. Despite the easing, the inflation rate still exceeds the Bank of England’s 2% goal. Prices at the pump increased by 21.3% compared to a year earlier, adding to household transport costs. The Bank of England maintained its key interest rate at 3.75% on July 29. Among policymakers, six supported holding the rate steady, while three voted for an increase to 4%.
Business sentiment at the start of the third quarter was mixed, as reflected in recent surveys. The manufacturing purchasing managers’ index declined to 51.9 in July from 52.5 in June, marking a four-month low but still indicating growth, as any figure above 50 signals expansion. Meanwhile, a preliminary composite index rose to 52.1 from 49.3, showing a return to private-sector growth across manufacturing and services sectors.
Investment and employment efforts face ongoing difficulties
Business investment grew by 0.9% in the first quarter after a 3% decline over the previous three months. Nonetheless, total investment still lagged 1.3% behind the same period last year. EY forecasts a 0.7% decrease in business investment for 2026, a notable shift from its earlier projection of no change. For 2027 and 2028, the firm predicts growth rates of 1.8% and 2.6%, respectively, both lower than previous estimates.
The labour market also displayed signs of softer demand. UK vacancies decreased by 7,000 to a total of 712,000 during the three months ending in June. The total fell by 0.9% from the previous quarter and 2.5% compared to the same period last year. Job openings declined across 10 of the 18 sectors surveyed. Meanwhile, regular pay increased by 3.4% from March to May. Overall, the data depict ongoing economic growth alongside persistent inflation above the target, reduced hiring activity, and lower business investment for the year.