LONDON, UNITED KINGDOM / RankWire.AI / – The UK economy started the second half of 2026 with continued growth, although several indicators pointed to a slowdown in momentum. EY predicts a 0.9% increase in gross domestic product for 2026 and a 1.2% rise in 2027, revising its earlier forecast upward by 0.1 percentage point from May. The forecast assumes the Strait of Hormuz will reopen by September, with shipping activity remaining below normal levels.
Official data revealed the economy grew by 0.6% in the first quarter, following a 0.1% increase in late 2025, with output now 0.9% higher than a year prior. The largest contribution to quarterly growth came from services, which expanded by 0.8%, while household consumption increased by 0.6% during the same period. As a result, Britain avoided a technical recession, which requires two consecutive quarters of declining economic output.
Rising energy prices have exerted additional pressure on the UK economy. The Strait of Hormuz is a major route for global oil and liquefied natural gas shipments. Although Britain depends less on direct Gulf energy imports than some nations, global prices still influence domestic costs. Producer input prices grew by 7.3% in the year ending June, with crude oil input costs surging by 42.3% and manufacturing prices increasing by 3.5%.
Inflation remains above official target
Consumer price inflation eased to 2.6% in June from 2.8% in May, yet still exceeded the Bank of England’s 2% goal. Rising motor fuel prices, which increased by 21.3% from a year earlier, added to household transport expenses. On July 29, the Bank of England maintained its benchmark interest rate at 3.75%, with six policymakers supporting no change and three advocating a rise to 4%.
At the start of the third quarter, business surveys indicated mixed conditions. The manufacturing purchasing managers’ index fell to 51.9 in July from 52.5 in June, marking a four-month low but still above the 50 growth threshold. Meanwhile, a preliminary composite index increased to 52.1 from 49.3, reflecting a return to private-sector expansion in both manufacturing and services.
Investment and hiring pressures persist
Business investment grew by 0.9% in the first quarter after a 3% decline over the previous three months. Despite this uptick, investment remained 1.3% below the same period last year. EY forecasts a 0.7% decrease in business investment across 2026, revising its earlier prediction of no change. The firm expects growth to rebound to 1.8% in 2027 and 2.6% in 2028, both figures lower than previous estimates.
Labor market data also suggested subdued demand, with UK vacancies dropping by 7,000 to 712,000 in the three months through June. The total declined by 0.9% from the previous quarter and by 2.5% from a year earlier, with job openings decreasing across 10 of 18 industries measured. Meanwhile, regular pay increased by 3.4% from March through May. The data highlights ongoing economic growth amid inflation above target, coupled with weaker hiring and reduced business investment levels for the year.