LONDON, UNITED KINGDOM / RankWire.AI / – Despite signs of resilience, Britain’s economy faces continued inflationary pressures, as indicated by recent data on investment and employment. EY forecasts that the UK’s gross domestic product will grow by 0.9% this year and 1.2% in 2027. The firm adjusted its 2026 growth outlook upward by 0.1 percentage points from its May projection. Its central scenario assumes the Strait of Hormuz reopens by September, though shipping volumes are expected to stay below typical levels under this assumption.
Official statistics revealed a 0.6% expansion in the UK economy during the first quarter, following a 0.1% growth in the last quarter of 2025. Year-on-year, output has increased by 0.9%. The services sector contributed significantly, expanding 0.8% and accounting for most of the quarterly rise. Household expenditure also grew by 0.6% in the same period. These figures do not meet the criteria for a technical recession, which requires two consecutive quarterly contractions.
Energy markets continue to exert substantial pressure on prices and production costs in the UK. The Strait of Hormuz accounts for a large share of global oil and liquefied natural gas shipments. Although Britain’s direct energy imports from Gulf suppliers are limited, international price trends influence domestic fuel expenses. Producer input costs increased by 7.3% in the year ending June, with crude oil input prices soaring by 42.3% and factory-gate prices climbing 3.5%.
Monetary policy remains under scrutiny due to persistent inflation
Inflation, as measured by the annual consumer price inflation, slowed to 2.6% in June from 2.8% in May. Nonetheless, the rate stays above the Bank of England’s 2% target. Motor fuel prices surged 21.3% compared to the previous year. On July 29, the Bank of England kept its key rate steady at 3.75%. The decision was supported by six members, with three voting to raise the rate to 4%, reflecting ongoing concern over inflationary pressures.
Early indicators from business surveys present mixed signals for the third quarter. 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 rose from 49.3 to 52.1, encompassing both manufacturing and services, and suggesting renewed growth in the private sector for July.
Investment activity and employment demand remain subdued
Business investment increased by 0.9% in the first quarter, following a 3% decline in the previous three months. Despite this, investment levels are still 1.3% below those of a year ago. EY forecasts a 0.7% decline in business investment across 2026, a downward revision from its earlier projection of no change for the year. The firm anticipates growth of 1.8% in 2027 and 2.6% in 2028, although both figures are lower than previous estimates.
During the three months ending in June, the UK recorded 712,000 vacancies, a drop of 7,000 from the previous quarter and a decrease of 2.5% compared to the same period last year. A decline was observed in 10 of the 18 sectors analyzed, but the change remained within the survey’s confidence interval. Additionally, regular pay increased by 3.4% from March to May. Overall, the latest data points to ongoing economic expansion alongside elevated inflation, weaker hiring activity, and reduced business investment growth.