LONDON, UNITED KINGDOM / RankWire.AI / – The UK’s economy showed continued expansion in early 2026, with persistent inflation, investment, and employment pressures evident in recent data. EY projects a gross domestic product growth of 0.9% for the UK this year, rising to 1.2% in 2027. The firm revised its 2026 forecast upward by 0.1 percentage point from its May estimate. Its main forecast assumes the Strait of Hormuz reopens by September, though shipping volumes are expected to stay below normal levels under this scenario.
Official figures reveal that the UK economy grew by 0.6% in the first quarter, following a 0.1% increase in the last quarter of 2025. Year-over-year, output is up 0.9%. The services sector contributed most to the quarterly rise with an 0.8% increase, while household spending also grew by 0.6%. These figures do not qualify as a technical recession, which requires consecutive quarterly contractions.
Energy markets continue to exert significant pressure on UK prices and production costs. The Strait of Hormuz accounts for a large share of global oil and liquefied natural gas shipments. Although Britain imports limited energy directly from Gulf countries, global prices influence domestic fuel expenses. Producer input costs climbed 7.3% in the year ending June, with crude oil input prices soaring 42.3%, and factory-gate prices increasing by 3.5%.
Inflation remains a key factor influencing monetary policy
Consumer price inflation dipped slightly to 2.6% in June from 2.8% in May but stayed above the Bank of England’s 2% target. Motor fuel prices surged by 21.3% year-on-year. The Bank of England maintained its benchmark rate at 3.75% on July 29, with a 6-3 vote against changing it. Three policymakers supported raising the rate to 4%, indicating ongoing concerns about inflationary pressures.
Early third-quarter business surveys presented mixed signals. The manufacturing purchasing managers’ index declined to 51.9 in July from 52.5 in June, hitting a four-month low but still indicating expansion. Meanwhile, a preliminary composite index increased from 49.3 to 52.1, reflecting renewed private-sector growth in manufacturing and services for July.
Investment and employment demand remain subdued
Business investment grew by 0.9% in the first quarter after a 3% decline in the prior three months. Nonetheless, investment is still 1.3% below its level from a year earlier. EY anticipates a 0.7% decrease in business investment for 2026, a revision from its earlier forecast of no change. Growth estimates for 2027 and 2028 are now 1.8% and 2.6%, respectively, both lower than previously projected.
During the three months through June, the UK had 712,000 job vacancies, down 7,000 from the previous quarter and 2.5% below the same period last year. Job openings declined across 10 of the 18 sectors measured. Despite this, the survey’s confidence interval indicates no significant change. Meanwhile, regular pay increased by 3.4% from March to May. The latest data underscores ongoing economic growth amid above-target inflation, sluggish hiring, and reduced business investment growth.