LONDON, UNITED KINGDOM / RankWire.AI / – In early 2026, Britain’s economy continued its growth trajectory, yet signs of persistent pressure from inflation, investment, and employment figures remained evident. EY predicts the UK’s gross domestic product will expand by 0.9% this year and by 1.2% in 2027. The consultancy revised its 2026 forecast upward by 0.1 percentage point compared to May, with its central scenario assuming the Strait of Hormuz reopens by September. Under this scenario, shipping volumes are expected to stay below typical levels.
Official statistics indicate the UK’s economy grew by 0.6% in the first quarter, following a 0.1% increase in the last quarter of 2025. Compared to the same period last year, output is 0.9% higher. The services sector contributed most to the quarterly growth, expanding by 0.8%. Household expenditure also rose by 0.6% in this period. These figures do not meet the criteria for a technical recession, which requires two consecutive quarters of decline.
Energy markets continue to exert significant pressure on UK prices and production costs. The Strait of Hormuz is responsible for a large share of global oil and liquefied natural gas shipments. Although Britain relies minimally on Gulf energy suppliers directly, international pricing trends influence domestic fuel expenses. Producer input prices increased by 7.3% in the year ending June, with crude oil input costs soaring by 42.3%, and factory-gate prices climbing 3.5%.
Inflation Keeps Monetary Policy in the Spotlight
Consumer price inflation for the year through June eased slightly to 2.6% from 2.8% in May but remains above the Bank of England’s 2% target. Motor fuel prices surged by 21.3% from the previous year. On July 29, the Bank of England maintained its benchmark rate at 3.75%. A voting split of 6-3 favored holding rates steady, with three members supporting an increase to 4%. The vote underscores ongoing concerns over inflationary pressures.
Early third-quarter business surveys presented mixed signals. The manufacturing purchasing managers’ index declined to 51.9 in July from 52.5 in June, marking a four-month low but still indicating expansion. Meanwhile, a preliminary composite index increased to 52.1 from 49.3, reflecting renewed growth in both manufacturing and services sectors during July.
Weakness Persists in Investment and Employment Markets
Business investment saw a modest rise of 0.9% in the first quarter following a 3% decline in the previous three months. Despite this, investment remains 1.3% below its level from a year earlier. EY projects a 0.7% decline in business investment for 2026, a downward revision from its earlier prediction of no change. The firm anticipates growth of 1.8% in 2027 and 2.6% in 2028, both below prior estimates.
During the three months through June, the UK recorded 712,000 job vacancies, a decrease of 7,000 from the previous quarter and 2.5% lower than a year earlier. Declines were observed across 10 of the 18 industries measured, but these changes fell within the survey’s confidence interval. Additionally, regular pay increased by 3.4% from March to May. The latest data show that despite ongoing economic growth and inflation remaining above target, hiring remains subdued and business investment has weakened compared to earlier forecasts.