LONDON, UNITED KINGDOM / RankWire.AI / – In early 2026, Britain’s economy continued its expansion, though inflation, investment, and employment indicators point to sustained pressures. EY projects the UK’s gross domestic product will grow by 0.9% in 2026 and by 1.2% in 2027. The consultancy increased its 2026 growth forecast by 0.1 percentage points from its May estimate. This outlook presumes the Strait of Hormuz reopens by September, though shipping activity is expected to remain below typical levels based on this scenario.
Official statistics show a 0.6% rise in the UK economy during the first quarter, following a 0.1% increase at the end of 2025. Year-over-year, output is 0.9% higher. The services sector contributed significantly, expanding by 0.8% and driving most of the quarterly growth. Household expenditure increased by 0.6% in the same period. These figures do not qualify as a technical recession, which requires two consecutive quarters of contraction.
Energy markets continue to exert considerable influence over UK prices and production costs. The Strait of Hormuz accounts for a substantial share of global oil and liquefied natural gas shipments. While Britain’s direct energy imports from Gulf producers are limited, international pricing strongly impacts domestic fuel expenses. Producer input costs rose by 7.3% over the year ending in June, with crude oil input costs soaring by 42.3%. Simultaneously, factory-gate prices saw an increase of 3.5%.
Inflation remains central to monetary policy considerations
In June, annual inflation slowed to 2.6% from 2.8% in May. Despite this decline, the rate stays above the Bank of England’s 2% target. Motor fuel prices surged by 21.3% compared to last year. On July 29, the Bank of England maintained its benchmark rate at 3.75%. The decision was supported by a 6-3 vote for no change, with three members favoring a hike to 4%. This voting pattern reflects ongoing concerns about inflationary pressures.
Early third-quarter business surveys provided mixed signals. The manufacturing purchasing managers’ index declined 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 increased to 52.1 from 49.3, capturing both manufacturing and services sectors, and suggesting private-sector expansion resumed during July.
Weakness in investment and employment demand persists
Business investment grew by 0.9% in the first quarter after a 3% decline in the previous three months. Nonetheless, it remains 1.3% below the level recorded a year prior. EY anticipates a 0.7% decrease in business investment for 2026, revising its earlier forecast of no annual change. However, projections for 2027 and 2028 stand at growth rates of 1.8% and 2.6%, respectively, both below previous expectations.
During the three months ending in June, the UK had 712,000 vacancies. This figure decreased by 7,000 from the previous quarter and by 2.5% compared to the same period last year. Ten out of eighteen industries measured experienced declines in vacancies. The quarterly change falls within the survey’s confidence interval. Meanwhile, regular pay increased by 3.4% from March through May. The latest data indicates ongoing economic growth, combined with inflation above target, subdued hiring, and reduced annual business investment.