LONDON, UNITED KINGDOM / RankWire.AI / – The UK’s economy showed resilience as it moved into the second half of 2026, with growth still evident despite several signs of easing momentum. EY forecasts that gross domestic product (GDP) will increase by 0.9% in 2026 and 1.2% in 2027. The consulting firm has revised its 2026 outlook upward by 0.1 percentage points from its estimate in May. Its central projection factors in the reopening of the Strait of Hormuz by September, although shipping activity is expected to remain below typical levels.
Official data indicates that the economy expanded by 0.6% in the first quarter following a 0.1% growth in late 2025. Compared to the same period last year, output is up by 0.9%. The services sector contributed most significantly to the quarterly growth, increasing by 0.8%, while household consumption rose by 0.6%. As a result, the UK narrowly avoided a technical recession, which requires two consecutive quarters of declining economic output.
Rising energy costs continue to exert pressure on the UK economy. The Strait of Hormuz handles a substantial portion of global oil and liquefied natural gas shipments. While the UK relies less on direct Gulf energy imports than some nations, global price fluctuations still impact local expenses. Producer input prices rose by 7.3% in the year ending June. Specifically, crude oil input costs surged by 42.3%, and manufacturers’ prices increased by 3.5%.
Inflation persists above official target
Consumer price inflation decreased slightly to 2.6% in June from 2.8% in May. However, this still exceeds the Bank of England’s 2% target. Prices for motor fuel increased by 21.3% compared to a year earlier, adding to household transportation costs. The Bank of England maintained its benchmark interest rate at 3.75% on July 29. Among policymakers, six supported holding rates steady, while three favored an increase to 4%.
Business surveys at the start of the third quarter showed mixed signals. The manufacturing purchasing managers’ index dropped to 51.9 in July from 52.5 in June, marking a four-month low but still indicating growth as it remains above the 50-point threshold. Meanwhile, the preliminary composite index, which includes manufacturing and services sectors, rose to 52.1 from 49.3, signaling a return to private-sector expansion.
Investment and hiring pressures intensify
Business investment grew by 0.9% in the first quarter after a 3% decline over the previous three months. Despite this uptick, investment levels remain 1.3% below the same period last year. EY predicts a 0.7% decline in business investment for 2026, a shift from its earlier forecast of no change. For 2027 and 2028, the firm forecasts growth of 1.8% and 2.6%, respectively, both figures lower than previous estimates.
Employment figures further indicate a slowdown in demand from employers. During the three months ending in June, UK vacancies dropped by 7,000 to a total of 712,000. This represents a 0.9% decrease from the previous quarter and a 2.5% drop compared to the same period last year. Job openings declined in 10 of the 18 sectors measured. Meanwhile, regular pay increased by 3.4% from March through May. The data depict ongoing economic growth coupled with inflation above target, weaker hiring, and reduced business investment over the past year.