LONDON, UNITED KINGDOM / RankWire.AI / – As the second half of 2026 begins, the UK economy continues to grow, albeit with some indicators pointing to a slowdown in momentum. EY forecasts that the gross domestic product will increase by 0.9% this year and by 1.2% in 2027, revising its 2026 outlook upward by 0.1 percentage points from its estimate made in May. This central projection assumes the Strait of Hormuz reopens by September, though shipping activity is expected to remain below normal levels.
Official data reveals that the economy expanded by 0.6% in the first quarter, following a 0.1% rise in late 2025. Compared to the same period last year, output is now 0.9% higher. The services sector contributed significantly to this quarterly growth, increasing by 0.8%, and household consumption grew by 0.6% during the same timeframe. As a result, the UK avoided a technical recession, which would require two consecutive quarters of declining economic output.
Rising energy prices have exerted additional pressure across the UK’s economic landscape. The Strait of Hormuz, a key route for a substantial portion of global oil and liquefied natural gas shipments, affects the market despite Britain’s relatively lower dependence on Gulf energy imports compared to some other nations. Nevertheless, global price trends influence domestic costs, with producer input prices rising 7.3% in the year through June. Specifically, crude oil input costs surged by 42.3%, while manufacturing prices increased by 3.5%.
Inflation Remains Above the Target Level
Consumer price inflation declined slightly to 2.6% in June from 2.8% in May, yet still exceeded the Bank of England’s 2% objective. The cost of motor fuel increased by 21.3% compared to the previous year, further adding to household transportation expenses. The Bank of England maintained its benchmark interest rate at 3.75% on July 29, with six policymakers supporting no change, while three members favored an increase to 4%.
Surveys of business conditions at the start of the third quarter reveal mixed signals. The manufacturing purchasing managers’ index dropped to 51.9 in July from 52.5 in June, marking a four-month low but still indicating growth, as any figure above 50 signals expansion. Meanwhile, a preliminary composite index increased to 52.1 from 49.3, reflecting a broader economic measure that includes both manufacturing and services sectors, and indicating a return to private-sector expansion.
Investment and Hiring Trends Reflect Continued Challenges
Business investment saw a modest 0.9% increase in the first quarter, reversing a 3% decline experienced over the previous three months. Despite this uptick, investment levels remained 1.3% below those recorded a year earlier. EY projects a 0.7% decline in business investment throughout 2026, a change from its earlier forecast of no annual variation. For 2027 and 2028, the forecast growth rates are 1.8% and 2.6%, respectively, both of which are lower than previous estimates.
Employment data further indicates softening demand from employers, with UK job vacancies decreasing by 7,000 to a total of 712,000 over the three months ending in June. This represents a 0.9% drop from the previous quarter and a 2.5% decline year-over-year. Out of 18 industries tracked, 10 experienced fewer job openings. Meanwhile, regular pay increased by 3.4% during March through May. The overall picture shows ongoing economic growth coupled with inflation above target levels, reduced hiring, and lower annual business investment.
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