LONDON, UNITED KINGDOM / RankWire.AI / – Britain’s economy kept expanding in early 2026, yet persistent pressures from inflation, investment, and employment data persisted. EY anticipates the UK’s gross domestic product to grow by 0.9% this year and 1.2% in 2027, raising its 2026 outlook by 0.1 percentage point from May. The central forecast assumes the Strait of Hormuz will reopen by September, but shipping volumes are expected to stay below normal levels based on that projection.
Official figures showed a 0.6% rise in the UK economy during the first quarter, following a 0.1% increase in the last quarter of 2025. Overall output is 0.9% higher than a year earlier, with the services sector expanding by 0.8% and contributing most to the quarterly growth. Household spending also increased by 0.6% during the same period. These figures do not qualify as a technical recession, which would require two consecutive quarterly contractions.
Energy markets continue to exert significant pressure on UK prices and production costs. The Strait of Hormuz accounts for a substantial portion of global oil and liquefied natural gas shipments. Although Britain relies minimally on Gulf suppliers for energy, international prices influence domestic fuel costs. Producer input prices rose by 7.3% in the year ending June, with crude oil input costs surging by 42.3% and factory-gate prices increasing by 3.5%.
Inflation Maintains Focus on Monetary Policy
Consumer price inflation slowed to 2.6% in June from 2.8% in May, yet it remained above the Bank of England’s 2% target. Motor fuel prices jumped 21.3% compared to the previous year. On July 29, the Bank of England maintained its benchmark rate at 3.75%, with a 6-3 vote for no change. Three members supported an increase to 4%, reflecting ongoing concerns about inflationary pressures.
Business surveys offered 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 expansion threshold of 50. Meanwhile, a preliminary composite index rose to 52.1 from 49.3, indicating renewed growth across manufacturing and services sectors during July.
Investment and Employment Still Showing Weakness
Business investment increased by 0.9% in the first quarter after a 3% decline over the previous three months, though it remained 1.3% below its level from the same period last year. EY now predicts a 0.7% decrease in business investment for 2026, down from its earlier forecast of no change. The firm projects growth of 1.8% in 2027 and 2.6% in 2028, but both estimates are below prior expectations.
During the three months through June, the UK recorded 712,000 job vacancies, a decrease of 7,000 from the previous quarter and a 2.5% drop year-over-year. Ten of the 18 industries measured saw declines in vacancies, though the quarterly change remains within the survey’s confidence interval. Meanwhile, regular pay increased by 3.4% from March to May. Overall, these figures reflect ongoing economic growth amid above-target inflation, softer hiring, and reduced business investment for the year.