LONDON, UNITED KINGDOM / RankWire.AI / – In early 2026, Britain’s economy continued its expansion, yet persistent inflation, investment, and employment data indicated ongoing pressure on the economic outlook. EY projects the UK’s gross domestic product to grow by 0.9% this year and by 1.2% in 2027, revising its 2026 forecast upward by 0.1 percentage points from its May estimate. The central forecast assumes the Strait of Hormuz will reopen by September, although under that scenario, shipping volumes are expected to stay below their typical levels.
Official statistics revealed that the UK economy grew by 0.6% in the first quarter, following a 0.1% increase in the last quarter of 2025, with output being 0.9% higher than a year earlier. The services sector contributed most to this quarterly growth with an expansion of 0.8%, while household expenditure increased by 0.6% over the same period. These figures do not meet the technical definition of a recession, which requires two consecutive quarters of contraction.
Energy markets remain a significant factor influencing UK inflation and production costs, with the Strait of Hormuz handling a large share of global oil and liquefied natural gas shipments. Although Britain imports limited energy directly from Gulf suppliers, international price trends impact domestic fuel expenses. Producer input prices increased by 7.3% in the year ending in June, with crude oil input costs soaring by 42.3%, and factory-gate prices climbing 3.5%.
Inflation remains a key focus for monetary policy
Consumer price inflation eased slightly to 2.6% in June from 2.8% in May, though still staying above the Bank of England’s 2% target. Prices for motor fuels increased by 21.3% compared to the previous year. On July 29, the Bank of England maintained its benchmark rate at 3.75%. The decision was split, with six members voting to hold, and three in favor of raising it to 4%, indicating ongoing concern about inflationary pressures.
Data from business surveys presented mixed signals at the beginning of the third quarter. The manufacturing purchasing managers’ index declined to 51.9 in July from 52.5 in June, marking a four-month low but still indicating expansion as it remained above 50. Meanwhile, the preliminary composite index increased to 52.1 from 49.3, reflecting renewed growth in both manufacturing and services sectors during July.
Weakness persists in investment and employment demand
Business investment experienced a 0.9% rise in the first quarter after falling 3% in the previous three months, yet still remained 1.3% below its level from a year earlier. EY anticipates a 0.7% decline in business investment throughout 2026, a downward revision from its earlier forecast of no change on an annual basis. For 2027, the firm projects growth of 1.8%, followed by 2.6% in 2028, though both estimates are lower than previous projections.
During the three months through June, the UK recorded 712,000 job vacancies, a decrease of 7,000 from the previous quarter and down 2.5% compared to a year earlier. Declines were noted across 10 of the 18 industries monitored, but the quarterly change remains within the survey’s confidence bounds. Meanwhile, regular pay increased by 3.4% from March through May. The latest figures illustrate ongoing economic growth amid inflation above target, subdued hiring, and a slowdown in annual business investment.