LONDON, UNITED KINGDOM / RankWire.AI / – Entering the second half of 2026, the UK economy maintained its expansion, although several key indicators pointed to softer growth momentum. EY projects that the gross domestic product will increase by 0.9% in 2026 and by 1.2% in 2027. The consultancy raised its forecast for 2026 by 0.1 percentage points compared to its May estimate. Its central outlook assumes the Strait of Hormuz reopens by September, with shipping activity still operating below typical levels.
Official statistics revealed a 0.6% expansion in the economy during the first quarter, following a 0.1% increase in late 2025. The output level was 0.9% higher than the same period last year. The services sector grew by 0.8%, making the largest contribution to the quarterly rise. Household consumption also increased by 0.6% during this timeframe. Consequently, the UK avoided a technical recession, which requires two successive quarters of declining economic output.
Rising energy costs have added strain across the UK economy. The Strait of Hormuz accounts for a significant portion of global oil and liquefied natural gas shipments. Although Britain depends less directly on Gulf energy imports than some nations, global prices continue to influence domestic costs. Producer input prices rose by 7.3% in the year ending June, with crude oil input costs surging by 42.3%, and manufacturers’ prices increasing by 3.5%.
Inflation remains above official target
Consumer price inflation slowed to 2.6% in June from 2.8% in May. Despite the decline, the rate still surpasses the Bank of England’s 2% target. The cost of motor fuel increased by 21.3% compared to the previous year, exerting additional pressure on household transport expenses. The Bank of England maintained its key interest rate at 3.75% on July 29. Among policymakers, six supported holding rates steady, while three preferred an increase to 4%.
Early third-quarter business surveys indicated mixed conditions across sectors. The manufacturing purchasing managers’ index dropped to 51.9 in July from 52.5 in June, marking a four-month low yet remaining above the 50-point threshold that signals growth. Meanwhile, a preliminary composite index rose to 52.1 from 49.3. This broader measure, covering both manufacturing and services, signaled a return to private-sector expansion.
Further pressure on investment and employment markets
Business investment grew by 0.9% in the first quarter after experiencing a 3% decline over the previous three months. Despite this uptick, investment levels remained 1.3% below the same period last year. EY anticipates a 0.7% decline in business investment throughout 2026, a shift from its earlier forecast of no change year-over-year. Looking ahead, the firm forecasts growth of 1.8% in 2027 and 2.6% in 2028, both figures below previous estimates.
Employment data also pointed to weakening demand from employers. Vacancies in the UK fell by 7,000 to a total of 712,000 in the three months through June. This represented a 0.9% quarterly decrease and a 2.5% drop compared to the previous year. Job openings declined across 10 of the 18 industries tracked. Meanwhile, regular pay increased by 3.4% during March to May, illustrating ongoing economic growth alongside inflation above the target, reduced hiring activity, and lower annual business investments.
}**/