LONDON, UNITED KINGDOM / RankWire.AI / – As 2026 progresses into its second half, the UK economy continues to expand, although with signs of waning momentum across several indicators. EY forecasts a gross domestic product increase of 0.9% for this year and 1.2% in 2027. The consultancy has nudged up its 2026 growth outlook by 0.1 percentage points compared to its May prediction. This projection assumes the Strait of Hormuz reopens by September, although shipping activity remains below typical levels.
In the first quarter, official statistics showed a 0.6% economic growth following a 0.1% rise at the end of 2025. The economy was 0.9% larger than it was a year earlier. The service sector contributed the most, expanding by 0.8%, and household consumption increased by 0.6%. Britain avoided falling into a technical recession, which is defined as two consecutive quarters of declining output.
Rising energy costs have exerted additional strain on the UK’s economic environment. The Strait of Hormuz handles a significant portion of global oil and liquefied natural gas shipments. While Britain depends less directly on Gulf energy imports compared to some nations, global price fluctuations still influence local expenses. Producer input prices climbed 7.3% in the year ending June. Specifically, crude oil input costs surged by 42.3%, and manufacturers’ prices increased by 3.5%.
Inflation remains above official target levels
Consumer price inflation eased slightly to 2.6% in June from 2.8% in May. Nonetheless, this rate still surpasses the Bank of England’s 2% target. Prices for motor fuels jumped 21.3% compared to the previous year, adding to household transportation expenses. The Bank of England maintained its benchmark interest rate at 3.75% on July 29. Six policymakers favored holding rates steady, while three preferred an increase to 4%.
Business surveys at the start of the third quarter indicated mixed conditions. The manufacturing purchasing managers’ index declined to 51.9 in July from 52.5 in June, marking a four-month low but still signifying growth since it remains above the 50 threshold. Meanwhile, a preliminary composite index rose to 52.1 from 49.3, showing an overall expansion in the private sector including both manufacturing and services.
Investment and hiring pressures persist
During the first quarter, business investment grew by 0.9%, recovering from a 3% decline over the previous three months. Despite this uptick, investment levels remained 1.3% below those of the same period last year. EY anticipates a 0.7% decline in business investment for 2026, revising its earlier forecast of no annual change. The firm projects growth of 1.8% in 2027 and 2.6% in 2028, both of which are below previous expectations.
Meanwhile, data from the labor market reveals subdued demand from employers. UK job vacancies decreased by 7,000 to 712,000 over the three months ending in June. The total fell by 0.9% compared to the previous quarter and 2.5% from a year prior. Out of 18 industries measured, ten experienced a drop in job openings. Meanwhile, regular pay grew by 3.4% from March to May. The figures depict ongoing economic growth alongside inflation above the target, weakened hiring activity, and reduced annual business investment.