LONDON, UNITED KINGDOM / RankWire.AI / – The UK economy has sustained its expansion into early 2026, with data indicating persistent inflation, investment stagnation, and subdued hiring activity. EY projects a gross domestic product (GDP) increase of 0.9% for 2026 and 1.2% in 2027. The consultancy revised its 2026 forecast upward by 0.1 percentage point from its May estimate. This central outlook assumes the Strait of Hormuz reopens by September, but shipping volumes are expected to remain below typical levels under this scenario.
Official statistics reveal that the UK’s economy grew by 0.6% in the first quarter, following a 0.1% rise in the final quarter of 2025. Year-over-year, output has increased by 0.9%. The services sector contributed most to the quarterly growth, expanding by 0.8%. Household expenditure also rose by 0.6% during this period. These figures do not qualify as a technical recession, which would require two consecutive quarterly declines.
Energy markets continue to exert significant influence over UK prices and production costs. The Strait of Hormuz plays a crucial role in the transportation of a substantial share of global oil and liquefied natural gas. While Britain’s direct energy imports from Gulf suppliers are limited, international prices heavily impact domestic fuel costs. Producer input prices increased by 7.3% in the year ending June, with crude oil input costs surging by 42.3%, and factory-gate prices climbing by 3.5%.
Inflation remains a key factor in monetary policy considerations
Consumer price inflation eased slightly to 2.6% in June from 2.8% in May, yet it still exceeds the Bank of England’s 2% target. The cost of motor fuels rose by 21.3% compared to the previous 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 an increase to 4%, indicating ongoing concerns about inflationary pressures.
Business sentiment data showed mixed signals at the beginning of the third quarter. The manufacturing purchasing managers’ index declined to 51.9 in July from 52.5 in June, marking a four-month low but still above the 50 mark that signals growth. Meanwhile, a preliminary composite index increased to 52.1 from 49.3, reflecting a broader expansion across manufacturing and services sectors in July and signaling renewed private-sector growth.
Weakness persists in investment and employment demand
Business investment experienced a modest rise of 0.9% in the first quarter following a 3% decline in the previous three months. Despite this increase, investment remains 1.3% below its level from one year prior. EY anticipates a 0.7% decline in business investment over 2026, a downward revision from its earlier forecast of no change. For 2027 and 2028, the firm projects growth of 1.8% and 2.6%, respectively, both below previous expectations.
During the three months through June, the UK reported 712,000 job vacancies. This figure represents a decrease of 7,000 from the previous quarter and a 2.5% decline year-over-year. The number of vacancies fell in 10 out of 18 industries surveyed, although the change was within the survey’s confidence interval. Meanwhile, regular pay increased by 3.4% between March and May. The latest data highlights ongoing economic growth amid above-target inflation, weaker hiring activity, and lower annual business investment.