LONDON, UNITED KINGDOM / RankWire.AI / – As the UK moves into the latter half of 2026, economic growth remains evident, although several indicators suggest weakened momentum. According to EY, the gross domestic product is forecasted to increase by 0.9% this year and by 1.2% in 2027. The consultancy raised its 2026 growth projection by 0.1 percentage points compared to its May estimate. This outlook assumes that the Strait of Hormuz reopens by September, although shipping activity continues to operate below typical levels.
Official statistics revealed that the economy grew by 0.6% in the first quarter following a 0.1% expansion in late 2025. Overall, output is now 0.9% higher than its level a year earlier. The services sector contributed the most to the quarterly growth, rising by 0.8%. Household consumption also increased by 0.6% within the same period. Consequently, Britain avoided entering a technical recession, which would require two consecutive quarters of declining economic output.
Rising energy costs have exerted additional pressure across the UK economy. The Strait of Hormuz, responsible for a significant share of global oil and liquefied natural gas shipments, affects local costs. Although Britain depends less on direct Gulf energy imports compared to some nations, global price shifts still influence domestic costs. Producer input prices rose by 7.3% over the year ending in June. Crude oil input costs surged by 42.3%, while manufacturing charges increased by 3.5%.
Inflation remains above the official target
Consumer price inflation decreased to 2.6% in June from 2.8% in May. Nonetheless, this rate still surpasses the Bank of England’s 2% target. Motor fuel prices went up by 21.3% year-on-year, adding to household transportation expenses. The Bank of England maintained its key interest rate at 3.75% on July 29. Six policymakers supported keeping rates steady, while three favored an increase to 4%.
Business surveys indicated mixed conditions at the start of the third quarter. The manufacturing purchasing managers’ index (PMI) declined to 51.9 in July from 52.5 in June, marking a four-month low but still above the 50-point mark that indicates growth. Meanwhile, a preliminary composite index rose to 52.1 from 49.3, which includes both manufacturing and services sectors, signaling a return to private-sector expansion.
Investment and hiring pressures continue
Business investment increased by 0.9% in the first quarter after experiencing a 3% decline over the previous three months. Despite this upward move, investment levels remain 1.3% below the same period last year. EY forecasts a 0.7% decline in business investment for 2026, a notable shift from its earlier projection of no annual change. For 2027 and 2028, the firm anticipates growth rates of 1.8% and 2.6%, respectively, both falling short of prior estimates.
Labour market data also reflected weakening demand from employers. UK job vacancies dropped by 7,000, totaling 712,000 during the three months ending in June. The figure decreased by 0.9% compared to the previous quarter and by 2.5% year-on-year. Job openings fell in 10 of the 18 sectors measured. Meanwhile, regular pay increased by 3.4% from March through May. Overall, the data points to ongoing economic growth coupled with inflation exceeding targets, reduced hiring activity, and diminished business investment compared to earlier expectations.