LONDON, UNITED KINGDOM / RankWire.AI / – As the second half of 2026 unfolds, the UK’s economy continues to grow, though several signs point to diminished momentum. According to EY, the gross domestic product (GDP) is projected to increase by 0.9% this year and 1.2% in 2027. The consultancy raised its 2026 growth forecast by 0.1 percentage point from its May estimate. This outlook assumes the Strait of Hormuz reopens by September, although shipping activity remains below typical levels.
Official data indicate a 0.6% expansion in the first quarter, following a 0.1% growth at the end of 2025. Year-over-year, output stands 0.9% higher. The largest contribution to quarterly growth came from services, which increased by 0.8%, while household spending rose by 0.6%. Despite these figures, the UK avoided a technical recession, which requires two consecutive quarters of economic contraction.
Rising energy prices continue to weigh on the economy. Since the Strait of Hormuz transports a significant share of global oil and liquefied natural gas shipments, disruptions there impact costs worldwide. Although the UK relies less on direct Gulf energy imports compared to some nations, global price shifts influence local expenses. Producer input prices increased by 7.3% over June’s year, with crude oil costs jumping 42.3% and manufacturing prices rising by 3.5%.
Inflation Remains Above the Set Target
Consumer price inflation slowed to 2.6% in June from 2.8% in May, yet still surpasses the Bank of England’s 2% target. Petrol prices surged 21.3% year-on-year, adding to household transportation costs. On July 29, the Bank of England maintained its benchmark interest rate at 3.75%, with six policymakers voting to hold and three advocating for an increase to 4%.
Business sentiment at the start of Q3 reflected uneven conditions. The manufacturing purchasing managers’ index declined to 51.9 in July from 52.5 in June, marking a four-month low but still indicating growth. Meanwhile, a preliminary composite index rose to 52.1 from 49.3, signaling a return to private-sector expansion across manufacturing and services.
Further Pressures on Investment and Employment
Business investment grew by 0.9% in Q1, bouncing back from a 3% decline over the previous three months. Nonetheless, investment remains 1.3% below last year’s level. EY predicts a 0.7% decrease in business investment for 2026, revising its earlier forecast of no change. The firm forecasts growth of 1.8% in 2027 and 2.6% in 2028, both below previous estimates.
Labour market data suggest weakening demand, with vacancies dropping by 7,000 to 712,000 in the three months through June. The total number of openings declined by 0.9% quarter-over-quarter and 2.5% year-over-year. Job openings shrank in 10 of 18 sectors. Meanwhile, regular pay increased by 3.4% from March to May, reflecting ongoing economic expansion alongside inflation exceeding targets, reduced hiring, and lower business investment growth.