LONDON, UNITED KINGDOM / RankWire.AI / – Britain’s economy kept expanding early in 2026, despite ongoing pressures from inflation, investment, and employment figures indicating persistent strain. EY forecasts a UK gross domestic product growth of 0.9% this year and 1.2% in 2027, raising its 2026 estimate by 0.1 percentage point from May, with the central forecast assuming the Strait of Hormuz reopens by September. Under that scenario, shipping volumes are expected to remain below typical levels.
Official data revealed a 0.6% increase in the UK economy during the first quarter, following a 0.1% rise in the final quarter of 2025. Year-over-year, output is 0.9% higher, with the services sector expanding by 0.8%, accounting for most of the quarterly growth. Household expenditure also grew by 0.6% during this period. These figures do not qualify as a technical recession, which requires two consecutive quarterly contractions.
Energy markets continue to exert significant influence on UK prices and production costs. The Strait of Hormuz handles a substantial share of global oil and liquefied natural gas shipments. While Britain imports limited energy directly from Gulf suppliers, international prices impact domestic fuel costs. Producer input prices climbed 7.3% in the year ending June, with crude oil input costs soaring by 42.3%, and factory-gate prices increasing by 3.5%.
Inflation Maintains Focus on Monetary Policy
Consumer price inflation decelerated to 2.6% in June from 2.8% in May, although it stayed above the Bank of England’s 2% target. Motor fuel prices surged 21.3% year-on-year. The Bank of England kept its key rate unchanged at 3.75% on July 29, with a 6-3 vote in favor of no change, while three members supported an increase to 4%, reflecting ongoing concerns about inflationary pressures.
Business surveys provided mixed signals at the start of the third quarter. The manufacturing purchasing managers’ index fell to 51.9 in July from 52.5 in June, marking a four-month low but still above the 50 threshold indicating expansion. Meanwhile, a preliminary composite index increased to 52.1 from 49.3, signaling renewed private-sector growth in manufacturing and services for July.
Weak Investment and Labour Market Conditions Persist
Business investment grew by 0.9% in the first quarter after declining 3% in the previous three months but remained 1.3% below its level from a year earlier. EY projects a 0.7% decline in business investment over 2026, adjusting downward from its earlier forecast of no change. For 2027 and 2028, EY anticipates growth of 1.8% and 2.6% respectively, both below previous estimates.
During the three months through June, the UK had 712,000 job vacancies, a decrease of 7,000 from the prior quarter and down 2.5% from a year earlier. Vacancy declines were observed across 10 of 18 industries measured, but the quarterly change remains within the survey’s confidence interval. Meanwhile, regular pay increased 3.4% between March and May, indicating ongoing economic growth amid above-target inflation, weaker hiring, and lower annual business investment.