LONDON, UNITED KINGDOM / RankWire.AI / – As the second half of 2026 begins, the UK economy continues to expand, although several economic indicators point to softer momentum. EY forecasts that the gross domestic product will grow by 0.9% in 2026 and by 1.2% in 2027. The company revised its 2026 growth estimate upward by 0.1 percentage point from its May projection. This outlook assumes the Strait of Hormuz reopens by September, with shipping activity still operating below usual levels.
Recent official data reveal a 0.6% expansion in the economy during the first quarter, following a 0.1% increase in late 2025. Year-over-year, output is 0.9% higher. The services sector contributed significantly to the quarterly growth, expanding by 0.8%. Household spending also increased by 0.6% during this period. Consequently, the UK avoided a technical recession, which is defined by two consecutive quarters of declining economic output.
Rising energy prices have exerted additional pressure across the UK’s economy. Since the Strait of Hormuz is a major route for global oil and liquefied natural gas shipments, disruptions there impact costs worldwide. While Britain’s reliance on Gulf energy imports is less than some other nations, global price fluctuations still influence local expenses. Producer input costs climbed 7.3% in the year ending June, with crude oil input costs surging 42.3%, and manufacturers’ selling prices rising by 3.5%.
Inflation remains above official target
Consumer price inflation decelerated to 2.6% in June from 2.8% in May. However, the rate still exceeds the Bank of England’s 2% target. Prices for motor fuels increased by 21.3% compared to the previous year, adding to household transportation costs. On July 29, the Bank of England maintained its benchmark interest rate at 3.75%. Out of six policymakers, three supported holding the rate steady, while three preferred raising it to 4%.
Business surveys at the start of the third quarter reveal 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 indicating growth since it remains above 50. Meanwhile, a preliminary composite index rose to 52.1 from 49.3, encompassing both manufacturing and services, signaling a return to private-sector expansion.
Investment and hiring difficulties persist
Business investment increased by 0.9% in the first quarter after a 3% decline over the previous three months. Despite this uptick, investment remains 1.3% below its level from the same period last year. EY predicts a 0.7% decline in business investment over 2026, revising its earlier forecast of no change. The firm anticipates growth of 1.8% in 2027 and 2.6% in 2028, both figures lower than previous estimates.
The labour market data also show signs of weakening demand from employers. UK vacancies decreased by 7,000 to 712,000 in the three months up to June. This represents a 0.9% decline from the previous quarter and a 2.5% drop compared to the same period last year. Job openings fell in 10 of the 18 industries tracked. Meanwhile, regular pay increased by 3.4% during March through May. These figures point to ongoing economic growth amid inflation above target, alongside reduced hiring activity and lower annual business investment.