LONDON, UNITED KINGDOM / RankWire.AI / – Britain’s economy persisted in expanding in early 2026, although inflation, investment, and employment figures indicate enduring pressure. EY projects the UK’s gross domestic product to grow by 0.9% in 2026 and 1.2% in 2027. The consultancy raised its 2026 outlook by 0.1 percentage point since May. Its central scenario assumes the Strait of Hormuz reopens by September, but shipping volumes are expected to stay below normal levels under that assumption.
Official statistics reveal that the UK economy grew by 0.6% in the first quarter, following a 0.1% increase in the last quarter of 2025. Overall, output is now 0.9% higher than the same period last year. The services sector contributed most to this growth, expanding by 0.8%, while household expenditure increased by 0.6%. These figures do not qualify as a technical recession, which requires two consecutive quarterly declines.
Energy markets continue to exert significant influence on UK prices and production costs. The Strait of Hormuz accounts for a large share of global oil and liquefied natural gas shipments. Although Britain sources limited energy directly from Gulf suppliers, international prices heavily impact domestic fuel costs. Producer input prices increased by 7.3% over the year ending in June. Crude oil input costs surged by 42.3%, and factory-gate prices rose by 3.5%.
Inflation Keeps Focus on Monetary Policy
Consumer price inflation fell to 2.6% in June from 2.8% in May, yet it remains above the Bank of England’s 2% target. Motor fuel prices saw a 21.3% increase year-over-year. On July 29, the Bank of England maintained its benchmark rate at 3.75%. The decision was a 6-3 vote in favor of holding rates steady, with three members supporting a hike to 4%. The vote underscores ongoing concerns about 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 remaining above the 50 level that indicates growth. Meanwhile, a preliminary composite index increased to 52.1 from 49.3, reflecting a broader recovery in both manufacturing and services sectors during July.
Investment and Employment Demand Continue to Falter
Business investment grew by 0.9% in the first quarter after a 3% decline in the previous three months. Despite this increase, investment remains 1.3% below its level from a year earlier. EY forecasts a 0.7% decline in business investment for 2026, down from its prior prediction of no change. However, it anticipates growth of 1.8% in 2027 and 2.6% in 2028, though both projections are lower than earlier estimates.
During the three months ending in 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. Vacancy numbers dropped across 10 of the 18 industries surveyed, but the change remained within the survey’s confidence interval. Additionally, regular pay rose by 3.4% from March through May. These figures indicate continued economic growth alongside inflation exceeding targets, subdued hiring, and reduced annual business investment.